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Amendment to the application of the General Act on Duties (AEAO)

(letter issued by the German Federal Ministry of Finance (BMF) on September 10, 2002 – IV C 4 – S 0171
– 93/02 -)

The application of the General Act on Duties of July 15, 1998 (Federal Tax Journal (German Federal Fiscal
Gazette) I, p. 630), last amended by the BMF letter date d July 1, 2002 (German Federal Fiscal Gazette I, p.
639) shall be amended as follows:

1. The provision pertaining to § 51 shall be as follows:

“In regards to § 51 – General:

1.

The following corporations may be eligible fo r tax privileges according to § 51: corporations,
associations of individuals and legal estates acco rding to the German Corporate Income Tax Law
(KStG). Legal entities of the Public Law with thei r commercial operations (§ 1, para. 1, no. 6, §
4 KStG) shall be included herein, but not lega l entities of the Public Law as such. Please see
BMF letter dated October 18, 1988 (German Federal Fiscal Gazette I, p. 443) regarding regional
divisions.

2. The decision regarding the waiver of corporate tax es according to § 5, para 1, no. 9 KStG due to
the promotion of tax-privileged objectives shall al ways be made for a certain assessment period
(policy of period taxation). A corporation may onl y be tax-privileged according to this regulation
provided it complies with all requirements for the assessment period in question. Subsequent
fulfillment of any one of the conditions may not ha ve a retroactive effect on previous, completed
assessment periods.

3. If corporations that have previously been subj ect to taxation become corporate income tax-
privileged according to § 5, para. 1, no. 9 KStG, they shall be subject to final taxation according
to § 13 KStG”.

– 2 –

2. The provision pertaining to § 52 shall be as follows:

“In regards to § 52 – Non-commercial objectives:

1. The non-commercial nature of a corporation requir es that its activities benefit the public (§ 52,
para. 1, p. 1). This condition sha ll not be considered if the circle of persons benefiting from the
activities is constantly restricted due to its limitations, particularly based on spatial or
occupational characteristics (§ 52, para. 1, p. 2).
The following shall be applicable:

1.1 General

An association with activities mostly benef iting its own members (particularly sports
clubs and associations promoting leisure activ ities outlined in § 52, para. 2, no. 4) does
not benefit the public if it keeps its membership low with high admission or
membership fees (including membership allocations)
Promotion of the public according to § 52, para. 1 shall be assumed for associations
with activities mostly benefiting their own members, if

a) the combined annual average membership fee and membership allocations are
not exceeding € 1023 per member and
b) the average admission fee for members accepted during the year is not
exceeding € 1534.

1.2 Investment allocation

It shall be considered harmless to the n on-commercial nature of an association with
activities mostly benefiting its own members, if the association requests an investment
allocation in addition to the above me ntioned admission and membership fees
(including other membership allocations), provided that the following conditions are
met:

– 3 –

The investment allocation shall not exceed € 5113 per member within 10 years. The
members shall have the possibility to divide the allocation payment to up to 10 annual
payments. The allocation may only be requested for financing specific investment
projects. In addition to the timely use of the funds for investment, the creation of
savings for future investment projects with in the scope of permitted reserves according
to § 58, no 6 and their use for paying back loans raised for financing investments shall
be considered harmless as well. The request for investment allocations may be limited
to new members (and to youth paying supplementary fees, see 1.3.1.2).

Investment allocations shall not be considered tax-privileged donations.

1.3 Calculation of the average

The average membership and admission f ees shall be calculated from the ratio of
benefits provided to the members to the number of included members.

1.3.1 Benefits provided to the members

1.3.1.1 Principle

The applicable admission and membership fees shall include all cash benefits and
monetary values required from a citizen to participate or remain in the association.
Allocations requested from members shall be included in the calculation of the average
admission and membership fees with the exception of permissible investment
allocations (cp. 1.2).

1.3.1.2 Special fees and additional payments

So-called advance payments for games in association with the admission into the club
shall be considered part of the applicable admission fees. Special allocations as well as
additional fees payable by the members for example for the annual use of the

– 4 –

field shall be included in the calculation of the average as additional membership
contributions.

As soon as young members who had been accepted into the club at reduced fees reach
the specified age where they need to pay regular admission fees, they shall be included
in the calculation of the average admission fees of the corresponding year.

1.3.1.3 Nonresident members

Membership and admission fees paid by nonresident members to other similar
associations shall not be included in the calcula tion of the average. This is also true if
the membership in the other club is a prerequisite for the admission as a nonresident
member or if it represents the eligibility for playing in the club’s own sports field.

1.3.1.4 Legal entities and companies

Expenses paid by legal entities and compani es of different legal form to achieve and
maintain their own membership with in the association (so-called company
memberships) shall not be included in th e calculation of the average (see 1.3.2).

1.3.1.5 Loans

Loans granted to the association by members in connection with their admission into
the club shall not be included as additional admission fees. If the loan is granted free of
interest or at an interest rate lower than common on the capital market, the annual
waiver of interest shall be included as add itional membership fee. For this purpose, a
typical interest rate of 5.5 % shall be assumed (verdict by the German Federal Fiscal
Court (BFH) dated November 13, 1996, Ge rman Federal Fiscal Gazette 1998 II, p.
711). Therefore, in case of interest-free loans, 5.5 % of the amount of the loan and in
case of loans at reduced interest rates, the am ount that the club is paying less than if the
interest rate was 5.5 %, shall be applicable.

– 5 –

These principles shall be equally valid if membership fees or allocations (including
investment allocations) have been granted as loans.

1.3.1.6 Investment in companies

Sometimes the sports facilities required by a club for playing the games are established
or managed by a company other than the club. If this is the case and the members are
required to invest in the company to be accepted into the club or to purchase so-called
rights of use to be eligible for playing in the club, the expenses for purchasing the
company shares or rights of use shall be considered additional admission fees.

1.3.1.7 Donations

If citizens allocate money labeled as donations to the sports club in association with
their acceptance, it shall be verified whether these payments are voluntary free
allocations, i.e. donations, or whether they are special payments required from new
members.

Special payments shall be included in th e calculation of the average admission fee.
This is equally applicable if the club is no t legally entitled to these payments according
to the Articles of Incorporation or the deci sion by the general meeting, but admission to
the club in fact depends on the payment of this special fee.

A factual obligation shall be assumed in any case where more than 75 % of new
members are paying an equal or similar speci al payment in addition to the regular
admission fee. Passive or promoting members, youth and nonresident members as well
as company memberships shall be excluded. To assess whether the special payments by
new members are equal or similar, the members shall add the special payments made

– 6 –

within three years of the admission application or, if an exceptionally long time has
passed between admission application and admission into the club, after the admission,
as far as these payments are not allocations requested from all members.

The 75 % limit is a disputable assumption for the existence of mandatory payments.
The actual ratios of the individual cases sh all be applicable. Therefore, special
payments shall be treated as additional admissi on fees even if they have been paid by
less than 75 % of new members, but these members have reportedly been obligated to
pay these fees according to the circ umstances of the individual cases.

The above mentioned principles including the 75 % limit shall be applicable
accordingly for the differentiation between actual donations and membership
allocations. In this case, mandatory payments shall be included in the calculation of the
average membership fee.

Mandatory payments of a permissible investment allocation (cp. 1.2) shall not be
included in the average calculation of admission and membership fees.

According to § 50 of the German Income Tax Executive Order (EStDV), no receipts
for donations may be issued for mandatory payments (such as admission fees,
membership fees, transfer payments for performances and allocations including
investment allocations). The principles outlin ed in the German Federal Finance Court
verdict of December 13, 1978 (German Federal Fiscal Gazette II, 1979, p. 488) shall
not be applicable as far as they do not comply with the afore mentioned principles.

1.3.2 Included members

The number of persons who were members of the club during the assessment period
(calendar year) shall serve as divisor for the calculation of the average membership fee.
Members who left or joined the club during the year, shall be included as well,

– 7 –

provided that they have been a permanent member or a permanent membership still
exists.

The number of persons newly admitted perm anently to the club during the assessment
period shall serve as divisor for calculating the average admission fee. Promoting or
passive members, youth and nonresident members shall be included in these
calculations. Nonresident members shall always be considered members residing
outside the catchment area of the club and / or persons who are an ordinary members of
a similar other sports club and therefore do not pay any or limited membership and
admission fees. Legal entities or companies of other legal form as well as sole
proprietors, who have access to the club based on the membership of their organization,
shall not be included.

Non-active members shall not be included if the club is using their inclusion in the
average calculation for improper objectives, such as for example if the number of non-
active members is exceptionally high or if it is observed with respect to the average
calculation, that non-active members have syst ematically been admitted without paying
membership fees or at reduced fees.

2. § 52, para. 2 shall be considered a non-c onclusive list of examples of non-commercial
objectives. Accordingly, the pub lic can equally benefit from objectives similar to the ones listed
in § 52, para. 2, no. 1 and 2. This shall be applicable mainly to objectives (excluding the non-
commercial objectives according to § 52, para. 2, no. 4, cp. no. 9) considered particularly worthy
of promotion according to § 10b, para. 1 of the German Income Tax Law (EStG) (attachment 1
to § 48, para. 2 EStDV) in addition to the objec tives listed in § 52, para. 2 no. 1 and 2. Some
examples are: the promotion of rescue from danger to life, fire protection, occupational health
and safety, civil protection and defense, animal welfare, accident prevention, consumer advice
and protection, equality between men and women, protection of marriage and family as well as

– 8 –

prevention of crime. The Promotion of road safety shall be considered promotion of accident
prevention and shall become a non-commercial objective too.

3. Internet associations shall be considered non-co mmercial due to their promotion of education,
provided their objective does not serve the pr omotion of (privately operated) data
communication through the provision of access to communications networks as well as the set
up, promotion and maintenance of corresponding networks for private and commercial use by
members or other persons.

4. Corporations operating or supporting private school s shall be distinguished between replacement
schools or supplementary schools. The benefit of the public shall always be assumed in case of
replacement schools because the authorities in charge may approve the establishment and
operation of replacement schools only if the segregation of pupils according to assets is not
being promoted (art. 7, para. 4, clause 3 of th e Basic Law of the Federal Republic of Germany
(GG) as well as German Private School Laws of the various states). In case of supplementary
schools, the benefit of the public shall be assu med if the company’s Articles of Incorporation
stipulate that no segregation based on the parent’s assets according to art. 7, para. 4, clause 3 GG
as well as German Private School Laws of the various states may be carried out.

5. Neighborly help associations, exchange circles a nd similar corporations in which the members
provide minor services of various nature to other members of the association (e.g. minor repairs,
house cleaning, cooking, child care, tutoring, home care) shall generally not be considered non-
commercial because the mutual support mainly benefits its own members and therefore
contravenes the principle of unselfishness (§ 55, para. 1). However, such corporations may be
considered non-commercial, if their activities are limited to support the elderly and persons in
need of help in their daily performances, th ereby promoting elderly welfare and charitable
objectives (§ 53). As far as the objective of th e corporation additionally extends to tutoring
services and childcare, it may be recognized as pr omotion of youth welfare. The non-commercial
nature of these corporations shall be recogni zed, provided the active members render their
services as auxiliary persons of the corp oration (§ 57, para. 1, clause 2).

– 9 –

6. One of the main elements of sports (§ 52, para. 2, no. 2) is the physical activity. Motor sports
shall be considered sports (G erman Federal Finance Court verd ict of October 29, 1997, German
Federal Fiscal Gazette II, 1998, p. 9) as well as ballooning. Skat (German Federal Finance Court
verdict of February 17, 2000, German Federal Finance Court /NV, p. 1071), bridge, GoGame,
gotcha or paintball however shall not be considered sports in the sense of the Law on Public
Welfare. This shall be equally applicable to amateur radio, model planes and dog sports, which
shall however, be considered own non-commercia l objectives (§ 52, para. 2, no. 4). Shooting
clubs may be recognized as non-commercial even if they are promoting shooting customs (cp.
no. 11) in addition to the shooting sport (as main objective) according to their Articles of
Incorporation. The organization of folkloristic s hooting festivals shall not be considered a benefit
to the public.
7. Promotion of paid sports activities shall not be considered an objective to benefit the public
because it promotes the interests of paid athletes. However, under certain circumstances, it shall
be harmless to the non-commercial nature of a sports club (see §§ 58, nos. 9 and 67a).

8. A tax-privileged, general promotion of the demo cratic political system shall be present only if
the corporation is extensively concerned about th e basic democratic principles and complies with
them in an objective and neutral manner. Howeve r, if the corporation’s objective is political
education concerned with the creation and prom otion of political consciousness and political
responsibilities based on the standards and ideas of a constitutional democracy, it shall be
considered public education. It must not necessar ily consist of theoretical instruction only, but
may be complemented by the call for specific acti on. In contrast, unilateral agitation, uncritical
indoctrination or party-oriented motivational in fluence (German Federal Finance Court verdict
of September 23, 1999, German Federal Fiscal Ga zette II, 2000, p. 200) shall not be considered
political education.
9. Promotion of leisure activities outside the field of sports shall only be recognized a promotion of
the public if in terms of characteristics that ju stify their tax-privileged promotion the leisure
activities are identical with the ones listed in § 52 , para. 2, no.4. It shall not suffice that the
leisure activity is reasonable and similar to one listed in § 52, para. 2, no.4 (German Federal
Finance Court verdict of September 14, 1994, Germ an Federal Fiscal Gazette II, 1995, p. 499).
The promotion to construct and opera te models of ships, cars, trains and kites is identical to the
promotion of modeling in the afore mentioned sense, while the promotion of CB radio is

– 10 –

identical with the promotion of amateur radio. Therefore, these objectives shall be considered a
benefit to the public. The following examples shall not be considered identical with the leisure
activities listed in § 52, para. 2, no.4 in the afor e mentioned sense and shall consequently not be
considered own non-commercial objectives: the pr omotion of amateur film and photography,
cooking, board and card games and the collection of objects such as stamps, coins and autograph
cards as well as activities related to clubs involve d in travel and tourism, sauna, sociability,
cosmetics and old-timers. However, tax privileg es may be considered for associations involved
in amateur film and photography as well as old-timers due to their promotion of the arts or
(technical) culture.

10. Fruit-growing and horticultural associations usually promote plant breeding according to § 52,
para. 2, no. 4. The promotion of bonsai art sh all be considered plant breeding, while the
promotion of aquariums and terrariums shall be considered animal breeding according to the
regulations.

11. Historic rifle clubs may be treated as beneficial to the pub lic due to the promotion of traditions
(cp. no. 6) as may hobby winegrower associations due to the promotion of patriotism, which
shall be considered part of traditions. The same shall be applicable for bachelor and fellow
associations, which promote the traditions of a cer tain region, such as the planting of May trees
(May clubs). Special mentions of the traditi onal customs as non-commercial objective in § 52,
para. 2, no. 4 however shall not signify a general expansion of the term customs in terms of
German Public Welfare Law. Therefore, stude nt associations such as fraternities, similar
associations such as rural youth organizations, country and western clubs and associations with
the main objective of organizing local fairs (e.g. parish fairs, country fairs and town guards
festivals) shall usually not be considered non-commercial.

12. Particular attention shall be paid to unselfishness (§ 55) and exclusivity (§ 56) of animal and
plant breeding as well as bachelor and fellow associations. For example, a corporation is not
acting unselfish if its main objective is the promo tion of its members interests. The stipulation of
exclusivity is being violated if the organization of festivals (e.g. Vintage Festival, May Ball) is
included in the Articles of Incorporation as an objective. When analyzing the actual business
management of hobby wine grower, bachelor and fellow associations, particular attention

– 11 –

shall be paid to the fact that the promotion of sociability is not the main objective of the
association’s activities.
13. Military and reservist associations usually pursue non-commercial objectives according to § 52,
para. 2, no. 4 if they support active former as well as regular and professional soldiers, e.g. by
discussing questions related to being a soldier, offering possibilities for meaningful leisure
activities or providing help with the transition to civil life. Maintaining traditions through
military and reservist associations shall neither be considered tax-privileged maintenance of
traditions nor support of soldiers and reservists ac cording to § 52, para. 2, no. 4. The promotion
of camaraderie in addition to a tax-privileged objective may be considered an objective of the
association if the Articles of Incorporation stipulate that it shall serve the creation of a bond
between the members arising from the non-co mmercial activities of the association only
(German Federal Finance Court verdict of March 11, 1999, German Federal Fiscal Gazette II, p.
331).
14. Establishments providing activities geared towa rd the recreation of working people (e.g.
operation of leisure facilities such as camp grounds or boat rentals) shall not be considered non-
commercial unless a certain circle of persons wo rthy of protection (e.g. persons who are ill or
youth) is benefiting from the provision of recreation, or if it is carried out in a specific way (e.g.
based on sports) (German Federal Finance Cour t verdicts of November 22, 1972, German
Federal Fiscal Gazette II, 1973, p. 251 and Sept ember 30, 1981, German Federal Fiscal Gazette
II, 1982, p. 148). Please refer to § 68, no. 1, letter a with respect to rehabilitation centers.

15. Political objectives (influencing political opinions, promotion of political parties etc.) shall not
be considered non-commercial objectives according to § 52.

A certain degree of influence of political opinion however shall not exclude the non-commercial
nature (German Federal Finance Court verdict of August 29, 1984, German Federal Fiscal
Gazette II, p. 844). Based on this verdict, political activity is harmless to the public benefit if it is
mandatory that the non-commercial activity is asso ciated with the political orientation according
to the individual circumstances and the immediat e influence on political parties and national will
power compared to the promotion of the common benefit are taking a back seat. Therefore, a
corporation shall still be considered exclusiv ely promoting its tax-privileged non-commercial
objective, even if it sometimes comments on curre nt political issues within the scope of the
objective outlined in the Articles of Incorporation.

– 12 –

The crucial factor is that current politics are not and shall not become the focus of the
corporation’s activities but shall serve the mediation of the tax-privileged objectives (German
Federal Finance Court verdict of November 23, 1988, German Federal Fiscal Gazette II, 1989, p.
391).

In contrast, benefit of the public shall not be pr esent if a political objective is stipulated in the
corporation’s Articles of Incorporation as the so le or main objective or if the corporation is
actually exclusively or mainly pursuing a political objective.

16. A corporation according to § 51 shall be considered beneficial to the public only if its activities
comply with the scope of the constitutional organi zation. The constitutional organization shall be
violated by the mere non-compliance with ordina nces issued by police (German Federal Finance
Court verdict of August 29, 1984, German Federal Fiscal Gazette II, 1985, p. 106). In principle,
nonviolent opposition such as sit-ins against pl anned measures by the government shall not
violate the constitutional organization (cp. resolution by the German Federal Constitution Law
(BVerfG) of January 10, 1995, New Le gal Weekly Journal (NJWS), p. 1141)”

3. The provision pertaining to § 53 shall be as follows:

“In regards to § 53 – Charitable objectives:
1. The term “charitable objectives” shall include the support of persons who require help due to
their emotional state. This is significant for example for the telephone counseling line.

2. It is not required that charitable activities are completely free of charge, while charitable
activities may not be carried out solely for the objective of being compensated.

3. A corporation for which the objective outlined in the Articles of Incorporation is the support of
needy relatives of members, shareholders, comrad es or founders, shall not be considered for tax
privileges. The key objective of such a corporation is not promoting charitable objectives, but
the support of relatives. Therefore, its activities are not geared toward the unselfish support of
persons in need as stipulated in § 53. With respect to foundations, § 58, no. 5 shall not be
opposed to this. The regulation merely represents an exception of the stipulation with respect to
unselfishness (§ 55), but shall not warrant its ow n charitable objective. With respect to the actual
business management, the support of relatives in n eed shall generally not be harmful with

– 13 –

respect to the privileges . However, relatives shall not be considered a criterion for the corporation’s
provision of benefits.

4. Support according to § 53 , no. 1 (support of persons who are depend ent on the help of others due to their
physical, psychological or emotional state) may be granted irrespective of the economical need for
support. When assessing the need according to § 53, no. 1, it shall not depend on whether the need for
support is constant or long-term. Support services such as “meals on wheels” for example shall be tax-
privileged. The need for support of persons older than 75 years shall be recognized without further
verification.

5. § 53, no. 2 regulates the limits of economical need for support. It stipulates that those persons may be supported whose acquisitions amount to less than four times, in case of singles or main caregivers five
times the standard rate of social welfare according to § 22 of the German Federal Social Welfare Law
(BSHG). Possible supplements to the standard rate for additional needs shall not be taken into
consideration. Expenses for accommodation shall not be considered separately. Please refer to H 190 (tax
credit for own income and acquisition) of the German Income Tax Advice (EStH) as well as R 180 e and
R 190, para. 5 of the German Income Tax Guidelines (EStR) for a definition of the terms “income” and
“acquisitions”.

6. Acquisitions according to § 53, no. 2 shall include all other acquisitions of all members of the household
intended or suitable as maintenance expenses in additi on to income according to § 2, para. 1 EStG. Income
not registered within the scope of th e fiscal revenue assessment, i.e. non-taxable income as well as tax-free
declared income (
German Federal Finance Court verdict of August 2, 1974, German Federal Fiscal
Gazette II, 1975, p. 139) sh all be included herein.

7. In case of life annuities, the part of the pension be yond the profit share registered in § 53, no. 2, letter a
shall be added to the acquisitions according to § 53, no. 2, letter b.

8. When determining the acquisitions according to § 53, no. 2, letter b, a total of € 180 shall be deducted per
calendar year for simplification reason s, provided no higher expenses associated with the corresponding
commercial revenue are established or accredited.

9. If a corporation provides serv ices to persons in economic need, it shall be obligated to provide
documentary proof that the amount of revenue and acq uisitions as well as the assets of the persons
supported are not exceeding the limits stipulated in § 53, no.2. A declaration issued by the supported

– 14 –

person confirming that the limits according to § 53, no. 2 have not been exceeded, shall not be
sufficient by itself. A copy of the calculations of relevant revenue and acquisitions shall always be
included.”

4. The provision pertaining to § 55 shall be as follows:

“In regards to § 55 – Unselfishness:

In regards to § 55, para. 1, no. 1:

1. A corporation shall be considered acting in an unselfish way if it is not pursuing objectives for its
own economical benefit or for the benefits of its members. If a corporation’s activities are mainly
geared towards the increase of its own assets, it is not acting in an unselfish way. If a corporation is
financed exclusively with loans from its founding members and this foreign capital is to be repaid
including interest according to the Articles of Incorporation (
German Federal Finance Court
verdicts of December 13, 1978, German Federal Fisc al Gazette II, 1979, p. 482, of April 26, 1989,
German Federal Fiscal Gazette II, p. 670 and of June 28, 1989, German Federal Fiscal Gazette II,
1990, p. 550), the corporation shall be considered pursuing goals mainly in its own interest.

2. If a corporation is maintaining taxable commercial bu siness operations, both its tax-privileged as well
as commercial activities shall be assessed carefully. The corporation shall not be tax-privileged if on
an overall assessment the commercial acti vities represent its key characteristics.

3. According to § 55, para. 1, any funds of the corporation may exclusively be used for purposes
stipulated in the Articles of Incorporation (for exceptions, please refer to§ 58). Likewise, the profit
arising from single purpose and taxable commercial busi ness operations (§ 64, para. 2) as well as the
surplus from the asset administration may only be used for purposes stipulated in the Articles of
Incorporation. This shall not ex clude the creation of reserves within the commercial business
operations and in the area of asset administration. The reserves shall be economically justified based
on reasonable administrative assessment (according to § 14, para. 1, no. 4 KStG). A specific reason
shall be required for the formation of reserves within the commercial business operations that equally
justifies its creation from an objective business point of view (e.g. planned relocation, plant
renovation or expansion). An almost complete allocation of the profit to the reserves within the

– 15 –

commercial business operations shall only be considered harmless in terms of tax-privileges, if
the corporation provides proof that the commercial use of funds was crucial with respect to its
existence (German Federal Finance Court verdic t of July 15, 1998, German Federal Fiscal
Gazette II 2002, p. 162). In the area of asset administration, reserves may only be formed outside
of the regulations detailed in § 58, no.7 to carry out specific repair or maintenance work of assets
according to § 21 EStG. The measures for which the reserves are being formed shall be
necessary for the maintenance or restoration of the proper state of the asset and they shall be
carried out within an appropriate period of tim e (e.g. planned renovation of a leaking roof).

4. Generally, it shall not be permitted to use non-material funds (particularly membership fees,
donations, subsidies, reserves), profits from single purpose operations, returns from asset
administration and the corresponding assets for taxable commercial business operations, for
example to offset a loss. To establish a loss, the returns of the uniform taxable commercial
business operations (§ 64, para. 2) shall be applicable. Therefore, the use of non-material funds
to offset a loss of an individual commercial divi sion shall be considered non-existent as far as the
loss can be charged against profits of anothe r taxable commercial division in the year it
developed. Should the loss remain, no use of non-material funds to balance it shall be assumed,
provided the profits of the uniform taxable commercial business operations of at least the same
amount have been added to the non-material area dur ing the past 6 years. In this respect, the loss
compensation shall be considered as a return of previous shifting of profits prescribed by the
German Public Welfare Law.

5. The loss of a taxable commercial business operati on determined based on income tax principles
shall be considered harmless with respect to the tax-privileges of the corporation if it developed
exclusively based on the consideration of pro-ra ted accruals on assets used for various purposes,
provided the following conditions are met:

– the asset had been purchased or produced for the non-material area and shall be used
partially or temporarily for the improved capacity utilization and fundraising with

– 16 –

respect to the taxable commercial business operations only. The corporation may not
have purchased or produced more assets than required for the non-material activities in
light of a temporary or partial use of the taxable commercial business operations.

– the corporation shall charge customary pr ices for the performances of its taxable
commercial business operations.

– the taxable commercial business operations shall not form an own sector of a building
(e.g. restaurant operations within a sports hall).

These principles shall be applicable accordi ngly for the consideration of other mixed
expenditures (e.g. temporary use of staff of th e non-material area within taxable commercial
business operations) with respect to loss assessments according to the German Public Welfare
Law.

6. In addition, the settlement of a loss of taxabl e commercial business operations by means of non-
material funds shall be harmless w ith respect to tax-privileges, if

– the loss is due to miscalculation

– the corporation is adding funds to the non-material range of activities in the
corresponding amount in which the loss has de veloped within 12 months after the end
of the fiscal year and

– the funds added shall not be considered part of single purpose operations, the area of
tax-privileged asset administration and fees or other subsidies allocated to the
promotion of tax-privileged objectives of the corporation (German Federal Finance
Court verdict of November 13, 1996, Germ an Federal Fiscal Gazette II, 1998, p. 711).

Based on the above, additions to the non-material area may be part of the return of (uniform)
taxable commercial business operations achieved duri ng the year following the loss. In addition,
for balancing the loss, it shall be possible to use allocations and subsidies intended here for.

– 17 –

However, these types of allowance shall not be considered tax-privileged donations.

7. With respect to tax-privileges, harmful use of funds for balancing the loss of taxable commercial
business operations shall neither be present if the required funds are provided to the company by
means of a commercial loan or if previously used non-material assets by means of a loan
allocated to the operations have been returned to the non-material area of the corporation within
12 months following the end of the year when the loss developed. As a prerequisite for the
innocuousness, amortization and interest payments for the loan shall be made exclusively from
assets of the taxable commercial business operations.
In principle, debiting of assets of the non-materi al area with collaterals for a commercial loan
(e.g. mortgage loans for a sports hall) shall not lead to a different assessment. The registration of
a mortgage loan shall not signify the use of debited assets for the taxable commercial business
operations.

8. Tax-privileged corporations maintain taxable co mmercial business operations on a regular basis
only for the procurement of additional funds to realize tax-privileged objectives. Therefore, it
shall be assumed that possible losses for companies that have been in existence for some time
are based on miscalculation. For the establishment of new operations, the use of assets of the
non-material area for balancing losses shall be considered harmless with respect to tax-
privileges, even if initial losses were to be exp ected. In this case too, the corporation shall be
obligated to return assets to the non-material ar ea, which may be used in a way harmless to the
public benefit usually within 3 years following the end of the year when the loss developed.

9. The regulations outlined in nos. 4 to 8 shall be applicable accordingly with respect to asset
administration.

10. Members shall not be allowed to receive any allowances from corporate assets. This shall not
include conveniences common within the scope of caring for members and considered
appropriate according to general opinion.

– 18 –

11. It shall not be considered an allowance according to § 55, para. 1, no. 1, if services rendered by
the corporation are rewarded by the recipient (e.g. for sales and service agreements as well as
contracts for work and services) and the values of service and reward are equal according to
commercial principles.

12. If assets provided to a corporation are encumbered with effective claims prior to the transfer (e.g.
usufruct, mortgages or pension debts, legacies based on regulations in the testament of the
benefactor), the fulfillment of which does not represent a reward for the transfer of assets
according to commercial principles, the claims sh all reduce the value of transferred assets at the
time of transfer. From a commercial point of view, the corporation only receives the assets
remaining after the fulfillment of the claims . Therefore, the fulfillment of claims from
transferred assets shall not be considered an a llowance according to § 55, para. 1, no. 1. This
shall be equally applicable if the corporati on fulfills claims from its other permissible assets
including reserves according to § 58, no. 7, letter a.

13. As far as the liquid assets are not sufficient to fu lfill the claims, the corporation shall use profits
to do so, provided sufficient funds remain for the realization of its tax-privileged objectives. This
condition shall be considered met, if no more than one third of the corporation’s revenue is used
for the fulfillment of liabilities. In case of pens ion obligations, the one-third limit shall include
not only the payments beyond the cash value, but also the complete payments. It shall be
applicable to the assessment period.

14. § 58, no. 5 contains an exceptional regulation pertaining to § 55, para. 1, no. 1 regarding
foundations. It shall be applicable only, if the foundation is providing services in violation of §
55, para. 1, no. 1 based on their merits, i.e. by providing voluntary allowa nces to the circle of
persons mentioned in § 58, no. 5 or by using re turns from the transfer of assets instead of the
debited or otherwise permissible assets to fulfill claims asserted by this circle of persons.
Contrary to other corporations, a foundation shall be allowed to use part of its income for the
fulfillment of such claims based on the conditions in § 58, no. 5, even if a sufficient amount of
liquid assets is available. However, the principle that the main part of the income shall remain

– 18 –

for the realization of tax-privileged objectives shall be applicable to foundations as well.
Conclusion: foundations may use a maximum of one third of their revenue for services outlined
in § 58, no. 5 and for the fulfillment of other claims based on the transfer of debited assets.

15. The provision of loans from funds intended for real-time use for tax-privileged purposes shall be
considered harmless for the public benefit if th e corporation uses them to realize its own tax-
privileged purposes as stipulated in the Articles of Incorporation. This may be possible, for
example if the corporation provides loans within the scope of its respective tax-privileged
purposes associated with debtor counseling for the redemption of bank debts, loans to budding
artists for the purchase of instruments or scholarships for a scientific education. The provision of
loans shall be different from the commercial provision of loans in that it provides more favorable
conditions compared to the common conditions of the capital market (e.g. interest-free, lower
interest rates).

The provision of loans from funds intended for real-time realization of tax-privileged purposes
to other tax-privileged corporations shall be permissible within the scope of § 58, nos. 1 and 2
(indirect realization of objectives), provided the other corporation agrees to use the funds
received as loans immediately within the period specified for real-time realization of tax-
privileged purposes.

Loans provided for the immediate realization of tax-privileged objectives shall be marked
accordingly in the accounting system. It shall be ensured and traceable for the financial
authorities that the return flow, i.e. amortization and interest payments are re-used in real-time
for tax-privileged purposes.

16. The corporation shall be allowed to provide lo ans from assets not subject to real-time use of
funds (assets including permissible allowances and reserves), according to the following
conditions:

Interest rates shall be within the range used in the capital market, unless forgoing of regular
interest rates is considered a permissible allo wance according to the regulations of the German
Public Welfare Law and the corporation’s Articles of Incorporation (e.g. loan to another tax-

– 20 –

privileged membership organization or a person in need). In case of loans from assets to
employees, the (partial) waiver of regular interest shall be considered part of the remuneration,
provided the total amount (i.e. including interest ra te advantage) is adequate and the waiver of
interest is treated as part of the remuneration by the corporation as well (e.g. payments of income
tax and social insurance contributions).

Measures for which reserves have been formed accord ing to § 58, no. 6, shall not be delayed due
to the provision of a loan.

17. The provision of a loan as such shall not be c onsidered a tax-privileged purpose. Consequently,
it may not be an objective listed in the Articles of Incorporation of a tax-privileged corporation.
However, it shall be considered harmless to th e tax privileges if the provision of interest-free
loans or loans with lower interest rates is not listed as purpose but as means for the realization of
the tax-privileged purpose in the cor poration’s Articles of Incorporation.

18. A corporation shall not be considered tax-priv ileged if its expenses for general administration
including advertising for donations are exceeding an adequate amount (§ 55, para. 1, nos. 1 and
3). This amount shall be considered exceeded in any case a corporation which is subsidized
primarily with financial donati ons is using them – following th e construction phase – mainly to
pay expenses for administration and advertising fo r donations instead of the realization of tax-
privileged purposes stipulated in the Articles of Incorporation (German Federal Finance Court
verdict of September 23, 1998, Ge rman Federal Fiscal Gazette II, 2000, p. 320). With respect to
the determination of proportions, administrative expenses including advertising for donations
shall be put in proportion to all collected assets (donations, membership fees, subsidies, returns
from commercial business operations, etc.).

The appropriateness of administrative expenses sha ll be fully dependent on the circumstances of
the respective case. Therefore, harmful use of assets with respect to tax privileges shall be
present if the percentage of administrative e xpenses including advertising for donations is
significantly less than 50 %.

19. During the establishment and construction phase of a corporation, the predominant use of funds
for administration and advertisement for donations shall be considered harmless with respect to

– 21 –

the tax privileges. The duration of the establishment and construction phase during which this is
possible, shall be dependent on the individual circumstances.

The time frame of 4 years for the co nstruction phase provided in the German Federal Finance Court
verdict of September 23, 1998 (German Federal Fiscal Gazette II, 2000, p. 320) in which higher pro-
rated expenses for administration and advertising for donations shall be permissible, is based on the
characteristics of the settled case (particularly the 2
nd construction phase following denial of tax
privileges). Therefore, it shall be considered the upper limit. It shall be assumed that construction
phases are usually shorter.

20. Tax privileges shall be denied too, if the ratio of administrative expenses to expenses for tax-
deductible purposes is indeed not objectionable, but one single administrative expense (e.g. the
business manager’s salary or advertising expenses for membership and donations) is inappropriate (§
55, para. 1, no. 3).

21. In principle, expenses with respect to the business manager’s activities shall be considered
administrative expenses. Allocation of these expenses to tax-privileged activities shall only be
possible as far as the business manager is involved in tax-deductible projects. The same shall be
applicable accordingly with respect to travel expenses.

22. If a corporation is using assets to recruit new members, it shall usually not be objectionable, provided
no more than 10 % of the total membership fees per year is spent. According to this regulation,
members are considered persons with membership rights and obligations (members according to
German Federal Law (BGB)). Expenses to recruit constant donors shall not be included in this limit.

In regards to § 55, para. 1, nos. 2 and 4:

23. The contributions in kind mentioned in § 55, para . 1, nos. 2 and 4 are contributions according to
German Commercial Law for which the member was granted corporate rights. In this respect, this
shall pertain to corporate entities only, but not to associations. Assets provided free of charge for
which no corporate rights have been granted (items on loan, donations of goods) shall not be subject
to § 55, para. 1, nos. 2 and 4. As far as capital shares and contributions in kind are excluded from the

– 22 –

asset formation, the shareholder shall not be entitled to donation-related preferential treatment
according to § 10 b EStG (§ 9, para. 1, no. 2 KStG).

In regards to § 55, para. 1, no. 4:

24. The principle of asset formation for tax-privileged purposes shall represent a key prerequisite for the
assumption of unselfishness in case of the terminatio n of the existence of the corporation or in case
the current objective ceases to exist (§ 55, para. 1, no. 4).

This stipulation shall serve to prevent that profits that were created based on the tax privileges are
subsequently used for non tax-privileged purposes. The requirements with respect to asset formation
outlined in the Articles of Incorporation are regulated in § 61 and § 62.

25. A corporation shall be considered tax-privileged accord ing to § 55, para. 1, no. 4, clause 2 only, if it
is exempt of corporate income tax according to § 5, para. 1, no. 9 KStG. This can only be a
corporation with unlimited liability for taxation (§ 5, para. 2, no. 2 KStG). Accordingly, the binding
asset allocation to a foreign corporation with unlimited liabilities for taxation outlined in the Articles
of Incorporation shall not satisfy the requirements (cp. no. 1 of § 61).

In regards to § 55, para. 1, no. 5:

26. In principle, the corporation shall use its assets in real-time for its tax-privileged purposes outlined in
the Articles of Incorporation. According to this definition, use shall be defined as use of funds for the
procurement or production of assets that serve the purposes detailed in the Articles of Incorporation
(e.g. construction of a nursing home, purchase of sports equipment or medical appliances).

The formation of reserves shall be permissible according to the conditions stipulated in § 58, nos. 6
and 7 only. Reserves in both the taxable commerci al business operations and in the area of asset
administration (cp. no. 3) shall remain unaffect ed. The use of funds intended for real-time tax-
privileged purposes for the provision of assets to a corporation shall be considered an infringement of
real-time use of funds, unless the funds will be used in real-time for purposes outlined in the Articles

– 23 –

of Incorporation by the receiving corporation, for example for the construction of a nursing home.

27. Real-time use of funds shall be present, if the funds are used for tax-privileged purposes outlined in
the Articles of Incorporation no later than during the calendar or fiscal year following the accrual.
Funds still available at the end of the calendar or fiscal year shall be allocated to the assets in the
financial statement or to the corporation’s asset su mmary or to a permissible reserve or be disclosed
as funds accrued during the past year intended for use for tax-privileged purposes during the next
year. As far as the funds have not been not used for tax-privileged purposes during the year of
accrual, their real-time use shall be demonstrated, preferably by means of an auxiliary calculation
(application of funds calculation).

28. The corporation’s assets sh all not be subject to real-time application of funds, even as far as it has
been created by regrouping (e.g. sale of a piece of real estate that is part of the assets, including the
part of the price exceeding the asset value). Moreov er, a corporation may add the funds identified in §
58, nos. 11 and 12 to its assets without harmful consequences to the public benefit.

In regards to § 55, para. 2:

29. Valorizations shall remain bound for tax-privileged purposes. Upon return of the asset itself, the
recipient shall balance the difference with money.

In regards to § 55, para. 3:

30. The regulation according to which asset formation shall not be extended to the member’s deposited
capital shares and the common value of contributions in kind provided by the members shall be
applicable accordingly to foundations, i.e. the founders and their heirs (§ 55, para. 3, first half clause).
It shall be permissible to exclude the founding capital and endowment contributions from the asset
formation and to return them to the founder or his heirs in case the foundation ceases to exist.
However, the founder shall not be entitled to donation privileges according to § 10 b EstG (§ 9,

– 24 –

para. 1, no. 2 KStG) for this type of donations and endowment contributions.

31. The regulation of § 55, para. 3, second half clause pertaining to foundations and corporations of the
Public Law only, takes into consideration the regulations contained in the EStG stipulating that the
withdrawal of an asset may be booked with the asset value, provided the asset has been supplied free
of charge to corporations listed in § 6, para. 1, no . 4, clause 4 EStG. This ensures that in case of
cancellation of the foundation the person providing the asset shall not be entitled to the common
value of the allowance but shall only receive the amount of the original asset value. Accordingly,
hidden reserves and valorizations shall remain bound to tax-privileged purposes. In case of return of
the asset itself, the recipient shall balance the difference with money.”

5. The provision pertaining to § 56 shall be as follows:

“In regards to § 56 – Exclusivity:

The regulation stipulates that a corporation may pur sue several tax-privileged purposes at the same time
without violating the exclusivity. All realized tax-pr ivileged purposes however shall represent objectives
listed in the Articles of Incorporation. Consequently , if a corporation wants to promote tax-privileged
purposes not listed in the Articles of Incorporation, an amendment to the Articles of Incorporation
complying with the requirements of § 60 shall be required.”

6. The provision pertaining to § 57 shall be as follows:

“In regards to § 57 – Immediacy:

1. In paragraph 1, the regulation stipulates that the corporation shall be obligated to realize the tax-
privileged purposes outlined in the Articles of Incorporation itself to ensure immediacy (for
exceptions, please refer to § 58).

2. The request for immediacy shall also be considered fulfilled according to § 57, para. 1, clause 2, if
the tax-privileged corporation is using an auxiliary person. It shall be imperative, that according to
the circumstances, particularly the legal and actual relationships between corporation and auxiliary

– 25 –

person, the activities of the auxiliary person shall be considered own activities of the corporation, i.e.
the auxiliary person shall be carrying out a certain order based on instructions provided by the
corporation. Auxiliary persons shall be a sole proprietor, an association of individuals or a legal
entity. The corporation shall be obligated to prove by means of corresponding documents that it is in
fact determining the activities of the auxiliary person. The following forms of agreements shall be
possible: labor agreement, contract of employment, contract for work and labor. With respect to the
interior relationship, the auxiliary person shall be bound to the orders issued by the corporation,
which shall in turn be obligated to prove that it is supervising the auxiliary person. The use of funds
according to regulations shall be ensured.

Tax privileges of a corporation which fulfills the characteristic of immediacy via an auxiliary person
only (§ 57, para. 1, clause 2), shall be granted irrespective of the fact whether the auxiliary person is
treated according to Public Welfare Law. Acting as an auxiliary person according to § 57, para. 1,
clause 2 shall not be considered grounds for own tax-privileged activities.

3. According to paragraph 2, a corporation consisting of a collection of tax-privileged corporations shall
be considered equal to a corporation pursuing i mmediate tax-privileged purposes, provided that any
one of the incorporated corporat ions fulfills all conditions required for the tax privileges. If a
corporation itself is pursuing immediate tax-privile ged purposes, the sole membership of a non-tax-
privileged organization shall be harmless with respect to tax privileges. However, the corporation
shall not be permitted to support the non-tax-privil eged organization with advice and deeds (e.g.
allocation of funds, legal advice).”

7. The provision pertaining to § 58 shall be as follows:

“In regards to § 58 – Harmless activities with respect to taxation:

In regards to § 58, no. 1:

1. This exception allows so-called development and donation collecting associations to be recognized as
tax-privileged corporations. The procurement of funds shall be stipulated in the Articles of
Incorporation. A tax-privileged purpose for which the funds are intended shall be mentioned in the
Articles of Incorporation. It shall not be necessary to list the corporations for which the funds are

– 26 –

collected in the Articles of Incorporation. The corporation for which the funds are procured shall be
tax-privileged only, if it is a corporation with unlimited tax duties. This condition shall equally be
applicable for the procurement of funds for commercial operations by a legal entity of the Public Law
(§ 4 KStG). If funds are procured for corporations without unlimited tax duties, the use of funds for
tax-privileged purposes shall be accounted for in an appropriate manner.

In regards to § 58, no. 2:

2. The partial (not predominant) transfer of own fund s (including physical funds) shall be considered
harmless. Profit distribution and other allocations of a tax-privileged corporation shall be considered
harmless if the benefiting shareholders or memb ers are exclusively tax-privileged corporations.

In regards to § 58, no. 3:

3. It shall be considered harmless with respect to taxation if work equipment (e.g. ambulance) is
provided in addition to labor.

In regards to § 58, no. 4:

4. “Rooms” according to no. 4 shall include sports site s, sports facilities and outdoor swimming pools.

In regards to § 58, no. 5:

5. A foundation may use part of its income – up to a maximum of one third – to maintain the tomb of its
founder and his/her closest relatives and to pay tribute to their achievements. Within this scope, it
shall be permissible to provide support to the founder and his/her closest relatives.

Income shall be defined as the sum of revenue from the various types of earnings according to § 2,
para. 1, EStG, irrespective of the fact whether the income is taxable or not. Positive and negative
income shall be balanced. The limits of loss settlem ent according to § 2, para. 3, EStG shall not be

– 27 –

taken into consideration. With respect to the determination of income, expenditures associated with
the revenue including accruals shall be deducted from the earnings.

Please refer to no. 12 to 14 of § 55 with respect to Taxation Law-dependent expenditures for the
fulfillment of liabilities caused by the transfer of debited assets.

6. According to § 15, the term close relative shall be considered more restrictive compared to the term
relative. It includes:
– spouses,
– parents, grandparents, children, nieces and ne phews (including the ones connected through
adoption)
– siblings
– foster parents, foster children.

7. Maintenance, care of tomb and payment of tribute shall be kept within a reasonable scope. In
addition to the relative limit of one third of the income, a certain absolute limit shall be established.
The reasonableness of the maintena nce measures shall be based on the recipient’s life standard.

8. § 58, no. 5 merely contains an exception of § 55, para. 1, no. 1 with respect to foundations (cp. no. 14
of § 56), without establishing an independent tax- privileged purpose. Therefore, it shall not be
possible to refer to § 58, no. 5 with respect to the tax-privileged treatment of a corporation for which
the Articles of Incorporation include the purpose to support the founder’s relatives in need of help.

In regards to § 58, no. 6:

9. When establishing reserves according to 58, no. 6, the provenience of the funds shall be irrelevant.
Reserves may therefore include funds intended for real-time use such as donations.

10. The condition for the creation of reserves according to § 58, no. 6 shall always be that the tax-
privileged purposes outlined in the Articles of Inco rporation cannot be fulfilled without it. According
to this regulation, the aspiration to maintain the general efficiency of the corporation shall not be
sufficient grounds fo r building reserves harmless with resp ect to taxation (only free reserves
according to § 58, no. 7 may be accrued, cp. nos. 13 to 17). In fact, the funds shall be collected for

– 28 –

certain projects – i.e. the realization of tax-privileged purposes outlined in the Articles of
Incorporation – for the implementation of which a specific time frame exists. If no specific time
frame exists yet, the formation of reserves shall be permissible if the implementation of the project is
feasible and possible in an appropriate time frame considering the financial conditions of the tax-
privileged corporation. The formation of reserves for periodically recurring expenses (e.g. wages,
salaries, rent) in the amount of the required funds fo r an appropriate time frame shall be permissible
(so-called operating cash reserves). The precautionary formation of reserves for payment of taxes
outside the taxable commercial business operations sh all be considered harmless as long as it remains
unclear whether the corporatio n will be claimed against.

The formation of reserves may not be based on the fact that the deliberations on the use of funds have
not yet been concluded.

11. The afore mentioned principles according to § 58, no. 6 shall be equally applicable to so-called
development and donation collecting associations according to § 58, no. 1 (
German Federal Finance
Court
verdict of September 13, 1989, German Federal Fiscal Gazette II, 1990, p. 28) provided
however, that the accrual of reserves corresponds to the procurement of funds for the tax-privileged
purposes of another corporation. This condition shall be considered met for example, if the
corporation procuring the funds is forced to retain them for the time being because the tax-privileged
measures it is intended to fund are being delayed.

12. If a tax-privileged corporation maintains taxable commercial business operations, its revenue shall be
added to the reserves after taxation only.

In regards to § 58, no. 7:

13. A maximum of one third of the surplus of earni ngs beyond the overhead expenses resulting from
asset administration shall be added to the free rese rves (§ 58, no. 7, letter a) per year. Overhead
expenses shall be considered advertising expenses based on their merits.

– 29 –

14. Moreover, a corporation shall be allowed to add a maximum of 10 % of its other funds intended for
real-time use according to § 55, para. 1, no. 5 to the free reserve. According to this regulation, funds
shall be defined as surplus or revenue from taxable commercial business operations and single
purpose operations as well as gross income from the non-material area. When applying the
regulations contained in § 64, para. 5 and 6, the actual revenue shall be included in the assessment
basis for the determination of the reserves instead of the estimated or globally determined revenue.

Losses arising from single purpose operations shall be balanced with corresponding surpluses; losses
exceeding this amount shall not reduce the assessment basis. This shall be applicable correspondingly
to losses arising from uniform commercial business operations. Irrespective of how it has been placed
in the reserves, a surplus arising from the asset administration shall not be included in the assessment
basis for the allocation of other funds intended for real-time use. A loss arising from asset
administration shall not reduce the assessment basis.

15. If the maximum limit according to nos. 13 and 14 ha s not been reached completely, it shall not be
permitted to make it up in subsequent years. The tax-privileged company shall not be obligated to
dissolve the free reserves during its existence. Fund s added to the reserves may be allocated to the
assets as well.

16. The collection and use of funds to procure corpor ate rights for the maintenance of the percentage
share in corporate entities shall not exclude the tax privileges (§ 58, no. 7, letter b). The provenience
of the funds shall not be relevant. § 58, no. 7 letter b shall not be applicable to the initial procurement
of shares in corporate entities. Fr ee reserves according to § 58, no. 7, letter a, shall be used for this
purpose among other things.

17. The maximum limit for allocation to the free reserves shall be reduced by the amount the corporation
pays or provides for the procuremen t of corporate rights to maintain the percentage share in corporate
entities. Should the amount used or provided for maintaining the amount of holdings exceed the
maximum limit, an allocation to free reserves in subsequent years shall only be possible, if the total
funds used for free reserves are exceeding the funds used or provided for the maintenance of the

– 30 –

amount of holdings. The allocation of funds to reserves according to § 58, no. 6 however, shall not
affect the maximum limit for the formation of free reserves.

Example:

Free reserves (§ 58, no. 7,
letter a) Use of funds for the
maintenance of the
amount of holdings
(§ 58, no. 7, letter b)
€ € €
Year 01
Allocation to the free reserves
Year 02
Maximum amount for the allocation of
free reserves:
1/3 of € 15000 =
10 % of € 50000 =
Result
Use of funds for the maintenance of the
share quota

Amount exceeding
Allocation to free reserves
Year 03
Maximum amount for the allocation of
free reserves:
1/3 of € 30000 =
10 % of € 100000 =
Result
Amount exceeding from
year 02
Remaining amount
Allocation to free reserves

5000
5000
10000

25000
__________
./. 15000
==========

10000
10000
20000

./. 15000
5000
=======

25000

0

5000

25000

– 31 –

In regards to § 58, nos. 6 and 7:

18. The tax-privileged corporation shall be obligated to demonstrate to the German Financial Authorities
whether the conditions for the formation of reserves are met. Moreover, it shall be obligated to list the
reserves separately in its accounting system according to § 58, nos. 6 and 7 – if necessary by means of
an auxiliary calculation – to allow verifica tion at any time without special expenses (
German Federal
Finance Court
verdict of December 20, 1978, German Federal Fiscal Gazette II, 1979, p. 496).

In regards to § 58, no. 8:

19. Social gatherings that are not of subordinate sign ificance compared to the tax-privileged activities
shall exclude tax privileges.

In regards to § 58, no. 10:

20. This exception allows foundations exclusively established by one or more regional corporations to
realize their tax-privileged objectives indirectly through subsidies provided to commercial
companies. The indirect realization of objectives shall be stipulated in the Articles of Incorporation.
The use of the subsidies for tax-privileged purpose s according to the Articles of Incorporation shall
be proven.

In regards to § 58, no. 11:

21. With respect to the allocations mentioned in the regulation, it shall be permissible in exceptional
cases to add funds intended for r eal-time use to the permissible assets. The list shall be considered
conclusive. Non-cash benefits that are part of the assets based on their nature, shall be defined as
assets, which the corporation may use in the n on-material area, within the scope of asset
administration or in the commercial business operations based on their nature.

Should funds be added to the assets based on this regulation, they shall be deducted from the
assessment basis concerning the allocation of othe r funds intended for real-time use according to §
58, no. 7, letter a.

– 32 –

In regards to § 58, no. 12:

22. During the year of foundation as well as during the two subsequent calendar years, foundations shall
be permitted to add surplus and revenue from asset administration, single purpose operations and
taxable commercial business operations completely or partially to their assets. This regulation shall
not be applicable with respect to other funds, such as allocations and subsidies.

Should both positive and negative results from asset administration, single purpose operations and
uniform taxable commercial business operations exist in one calendar year; the addition to the assets
shall be limited to the positive amount remaining after balancing the results.

In regards to § 58, nos. 2 to 12:

23. The exceptions mentioned in § 58, no. 2 to 9, 11 and 12 may be realized without corresponding
regulations contained in the Articles of Incorporati on as well. Nongratuitous activities according to §
58, nos. 3, 4 or 8 shall constitute taxable commercial business operations or asset administration (e.g.
building lease). With respect to the regulations according to § 58, nos. 5, 10 and 12, the designation
of the corporation as foundation shall not represent the determining factor, but its actual legal form
shall. It shall be irrelevant whether the foundation has a legal capacity or not.”

8. The provision pertaining to § 59 shall be as follows:

“In regards to § 59 – Conditions with respect to tax privileges:

1. The regulation establishes among other things, that tax privileges shall be granted only if a tax-
privileged purpose (§ 52 to § 54), unselfishness (§ 55) and exclusive and immediate pursuit of
objectives (§ 56, § 57) by the corporation are directly stipulated in the Articles of Incorporation. An
additional condition outlined in the Articles of Incorporation shall be the binding allocation of funds
stipulated in § 61. Commercial business operations (§ 14 , clauses 1 and 2 and § 64) which are not
single purpose operations (§ 65 to § 68) as well as asset administration (§ 14, clause 3) shall not be
considered a purpose outlined in the Articles of Incorporation.

– 33 –

2. In case of several commercial operations of a legal entity of the Public Law, every commercial
operation shall require its own Articles of Incorporation.

3. No special acceptance procedures shall be provided in the taxation-related German Public Welfare Law. The Financial Authorities shall decide through an assessment procedure by means of a tax
assessment notice (notice of exemption if necessary) whether a corporation is tax-privileged. For this
purpose, it shall officially determine the actual and legal conditions significant in terms of liability for
taxation and tax assessment. A corporation for which the legal conditions for the tax-related treatment
as tax-privileged corporation are met shall therefore be treated as such, irrespective of whether a
corresponding request has been submitted or not. The waiver for being treated as a tax-privileged
corporation shall not affect the Taxation Law.

4. Upon request of a newly established corporation for which the conditions for tax privileges have not been established by means of a tax assessment notice, the German Finance Authorities shall
temporarily declare for example based on the receipt of tax-privileged donations or a waiver of fees,
that the corporation has been registered in the taxation system and that the Articles of Incorporation
submitted comply with all conditions stipulated in § 59, clause 1, § 60 and § 61, which are required
with respect to tax privileges according to § 5, para. 1, no 9 KStG among other things. A temporary
confirmation of public benefit may be issued only upon presentation of a set of Articles of
Incorporation, which comply with the regulations outlined in the German Public Welfare Law.

5. The temporary confirmation on the public benefit shall not represent an administrative act, but merely be considered information regarding the identified partial area of the conditions required for tax
privileges. For example, it does not mention anything on the agreement between Articles of
Incorporation and actual business management. It shall be issued for a limited time and shall be
revocable at any time (
German Federal Finance Court verdict of May 7, 1986, German Federal
Fiscal Gazette II, p. 677). It shall not be valid for more than 18 months.

6. The provision of a temporary confirmation on the public benefit may also be considered if a
corporation has been in existence for some time and its public benefit had been denied in the taxation
assessment process (
German Federal Finance Court verdict of September 23, 1998, German Federal
Fiscal Gazette II 2000, p. 320).

– 33 –

6.1 A temporary confirmation on the public benefit shall be issued upon request in cases where the
corporation is likely to fulfill the conditions with respect to public benefit during the complete
assessment period that follows the time frame of the non-provision. Its validity should not exceed
18 months.

6.2 Moreover, the provision of a tem porary confirmation on the public benefit shall be applicable as
well if the corporation is no t considered non-commercial according to the German Finance
Authorities. In these cases, the confirmation shall be granted only if the following conditions are
met:

6.2.1 The corporation shall have requested legal protection from the German Finance Authorities in
charge against a decision by the German Finan ce Authorities in which the temporary confirmation
on the public benefit was denied.

6.2.2 Sincere doubt shall exist whether the claims proceed ings will confirm the denial of public benefit.
This requires that the corporation conclusively demonstrates and accredits that it fulfills the
conditions for the public benefit according to its Ar ticles of Incorporation as well as with its actual
business management.

6.2.3 The commercial existence of the corporation shall be endangered due to the non-provision of the
temporary confirmation. The assessment shall be dependent on the circumstances of the respective
case. Danger to the existence may not merely be assumed because the corporation has financed
itself to a major degree from donations or tax-deduct ible membership fees and because a significant
reduction of this revenue is expected based on the non-provision of tax privileges. For example, it
shall not be considered present if the corporation disposes of sufficient utilizable assets or if it is
able to raise sufficient credits. As a reason for the application, the corporation shall conclusively
demonstrate and accredit the danger to its existence.

Temporary confirmation on the public benefit according to no. 6.2 shall be granted form-less if necessary.
It shall put the corporation in a position to be able to campaign for donations using the indication of tax
privileges. Its validity shall be limited to the time of the conclusion of the legal proceedings. It shall be

– 35 –

dependent on the circumstances of the respective case whether conditions such as the ones outlined in the
case decided by the
German Federal Finance Court (quarterly submission of compilations of income and
expenditures among other things) are reasonable and necessary.

7. The temporary confirmation shall be replaced by th e tax assessment notice (tax exemption notice if
applicable). The tax exemption shall be reviewed at least every three years.”

9. Number 5 of the provision pertaining to § 60 shall be as follows:

“The actual business administration (cp. § 63) shall comply with the Articles of Incorporation.”

10. Appendix 2 pertaining to § 60 shall be amended as follows:

a) The remarks in brackets in letter a, 2 nd dash, shall be as follows:

“(cp. no. 31, clauses 2 and 3 pertaining to § 55)”

b) In letter b, 4 th dash, the words “in case of liquidation of the corporation” shall be followed by the
words “or in case of discontinuation of the tax-privileged purposes”.

c) The remarks in brackets in letter b, last clause shall be as follows:

“(cp. no. 23, clause 4 pertaining to § 55).”

11. Number 1 of the provision pertaining to § 61 shall be as follows:

“1. The regulation establishes that the binding allocat ion of assets for tax-privileged purposes as a
condition for the public benefit particularly in case of liquidation of the corporation shall clearly be
determined in the Articles of Incorporation (model Articles of Incorporation, § 5). The binding
allocation of funds to a not unlimited taxable foreign corporation stipulated in the Articles of
Incorporation shall not satisfy the requirements (cp. no. 25 pertaining to § 55).”

– 36 –

12. Number 2 of the provision pertaining to § 62 shall be as follows:

“2. The state-approved recognition of a foundation shall not justify an exemption; in fact, the
foundation shall be subject to national supervision according to the Law on Foundation of
the states.”

13. The provision pertaining to § 63 shall be as follows:

“In regards to § 63 – Requirements of the actual business management:

1. The corporation shall be obligated to prove by means of proper records pertaining to
revenue and expenses that its actual business management complies with the required
conditions. Other evidence providing information on the corporation’s actual business
management (e.g. protocols, activity reports) shall be submitted to the German Financial
Authorities. The regulations of the German Fiscal Code on the administration of accounts
and records (§§ 140 et sqq.) shall be observ ed. The regulations contained in the German
Business Law including corresponding regulations on the administration of accounts shall
be applicable only as far as they are not defined by the legal form of the corporation or by
its commercial activities. An increased obligation of proof shall be applicable in case of the
realization of tax-privileged purposes abroad (§ 90, para. 2).

2. The actual business management shall also include issuing tax receipts for donations. In
case of violation of this obligation, e.g. for issuing receipts as favors, the tax privileges
shall be denied.

3. The actual business management shall remain within the scope of the constitutional
organization, because the legal system takes for granted the law-abiding behavior of all
parties subject to law (cp. no. 16 pertaining to § 52). Tax evasion shall be considered a
violation of the legal system resulting in the denial of tax privileges (
German Federal
Finance Court
verdict of September 27, 2001, German Federal Fiscal Gazette II, 2002, p.
169).”

– 37 –

14. The provision pertaining to § 64 shall be as follows:

“In regards to § 64 – Taxable commercial business operations:

In regards to § 64, para. 1:

1. The corresponding tax law, i.e. § 5, para. 1, no. 9 KStG, § 3, no. 6, German Law on Tax Profits
(GewStG), § 12, para. 2, no. 8, clause 2 German Sales Tax Law (UStG), § 3, para. 1, no. 3b German
Property Tax Law (GrStG) in conjunction with A 12, para. 4 of the German Property Tax Guidelines
(GrStR) shall be applicable as law for the partial exclusion of the tax privilege, namely with respect
to commercial business operations (§ 14, clauses 1 and 2).

2. Please refer to § 14 with respect to the term “commercial business operations” and to the German
Federal Finance Court
verdict of August 21, 1985 (German Federal Fiscal Gazette II, 1986, p. 88)
with respect to “sustainability” in terms of commercial business operations according to which an
activity shall be considered sustained, if it is based on repetition. The general intention to repeat an
identical or similar action at corresponding occasions shall be sufficient in this respect. Repeated
activities shall also be assumed if the reason to become active is based on a nonrecurring decision,
while the execution requires several (individual) activities.

3. The standardized, separate notice of revenue assessment of business partnerships ( German Federal
Finance Court
verdict of July 27, 1988, German Federal Fiscal Gazette II 1989, p. 134) shall
bindingly establish whether a tax-privileged cor poration involved in a business partnership or
community is drawing commercial revenue, thereby operating a commercial business (§ 14, clauses 1
and 2). Whether the commercial business operations are taxable or whether they shall be considered
single purpose operations (§ 65 to § 68) shall be decided based on the tax assessment of the tax-
privileged corporation. The involvement of a tax-priv ileged corporation in a corporate entity shall be
considered asset administration (§ 14, clause 3). However, it shall represent commercial business
operations if it is used to exert an actual influence on the current business management of a corporate
entity or if it represents a case of division of operations (cp.
German Federal Finance Court verdict
of June 30, 1971, German Federal Fiscal Gazette II, p. 753; H 137, para. 4 to 6 EStH). Should the
corporation be involved in a corporate entity which primarily serves the asset administration, it shall
not be considered commercial business operations, even if it is exerting an influence on the business
management (see section 8, para. 5 German Corporate Tax Guidelines (KStR). This shall equally be

– 38 –

applicable for the involvement in a tax-privileged corporate entity. The principles of the division of
operations shall not be applicable if both the operating as well as the owning company are tax-
privileged.

4. With respect to the determination of revenue from the commercial business operations, business
expenses caused by the operation shall be taken into consideration. They shall include expenses
immediately allocated to the operation because without it they would not have developed or at least
not to this extent.

5. With respect to costs of so-called mixed origin arising both from tax-privileged and taxable activities,
the consideration of operating expenses of the ta xable commercial business operations shall be
eliminated if they primarily originate from the tax-privileged area. For example, if advertising
measures are carried out during sports or cultural events, the events expenses shall not be considered
operating expenses of the taxable commercial “marke ting” business operations as far as they would
have arisen without advertising (
German Federal Finance Court verdict of March 27, 1991, German
Federal Fiscal Gazette II, 1992, p. 103; please refer to nos. 28 et sqq. for global revenue
determination with respect to marketing associated with tax-privileged activities including single
purpose operations).

6. Irrespective of their primary origin, a pro-rated consid eration of expenditures of mixed origin
(including depreciation for wear and tear) shall be permissible as operating expenses of the taxable
commercial business operations, provided objective measures are available for the division of
expenditures (e.g. according to temporal points of view) with respect to the non-material area
including single purpose operations and taxable commercial business operations.

Accordingly, the pro-rated operating expense deduction of expenditures (e.g. for golf course and staff
expenses) shall be applicable for the revenue de termination of taxable commercial “green fee”
business operations of tax-privileged golf asso ciations – differing from the principles of the
German
Federal Finance Court
verdict of March 27, 1991 (German Federal Fiscal Gazette II 1992, p. 103) –
due to the capability of delimitation according to objective standards (e.g. ratio of golf course
utilization by players not belonging to the association to golf-playing member s per calendar year). In
case of non-commercial music associations, a pro-rated amount of expenditures partially associated
with performances by their music groups at own taxable festivals shall be deducted from the taxable

– 39 –

commercial business operations as business expenses. Among these expenditures are for example
costs for sheet music, uniforms and amplifiers used both for free performances and single-purpose
operations, i.e. performances within the scope of own taxable operations. The number of hours
including rehearsals allocated to the respective areas shall serve as criterion for the division.

As far as general administrative personnel and materials costs are partially allocated to the
commercial business operations according to objective criteria, it shall be permissible to deduct them
from there. Normally, no objective division criteria exist with respect to costs for the construction and
maintenance of club houses.

7. Sponsoring shall be considered the provision of m oney or monetary advantages by companies for the
promotion of persons, groups and / or organizations in the areas of sports, culture, religion, science,
sociology, ecology or similar significant social policies which regularly serve the pursuit of own
company-related advertising purposes or the promoti on of public relations. Services provided by a
sponsor are usually based on an agreement betwee n sponsor and recipient of services (sponsoring
agreement) which regulates the type and extent of services between sponsor and recipient.

8. In a tax-privileged corporation, services received in association with sponsoring shall represent tax-
free revenue in the non-material area, tax-free revenue from asset administration or revenue from
taxable commercial business operations. Fiscal treatme nt of the services on the recipient’s side shall
generally be independent of how the corresponding expenses are treated on the side of the sponsoring
company. The general guidelines shall be applicable with respect to the delimitation.

9. Accordingly, it shall not be considered commer cial business operations if the tax-privileged
corporation only allows the sponsor to use his name for advertising purposes in such a way, that the
sponsor himself points out the services he provides to the corporation for advertising purposes or for
the cultivation of his image.

– 40 –

Moreover, it shall not be considered commercial business operations if the recipient of the services
merely refers to the support by a sponsor for example by means of billboards, events notices, and
exhibition catalogs etc. This indication can take place either using the sponsor’s name, emblem or
logo or without particular emphasis. Correspondingly, sponsoring revenue shall not be considered
revenue arising from asset administration. Therefore, an addition to the free reserves according to §
58, no. 7, letter a shall only be possible in the amount of 10 % of the revenue, but not in the amount
of a third of the resulting surplus.

10. In contrast, it shall be considered commercial business operations if the corporation is involved in the
marketing activities. The commercial business operations may not be single purpose operations (§ 65
to § 68). As far as sponsoring revenue is immediately associated with commercial business operations
taxable for other reasons, it shall be added to these.

In regards to § 64, para. 2:

11. The regulation that several taxable commercial business operations shall be treated as one operation
with respect to tax-privileged corporations shall be equally applicable for the determination of the
corporation’s taxable revenue and for the assessment of the obligation to administrate the accounts
according to § 141, para. 1. It shall be dependent on the values (revenue, surplus) of the overall
operations to determine whether the limit for the obligation to administrate the accounts has been
exceeded.

12. § 55, para. 1, no. 1, clause 2 and no. 3 shall be applicable with respect to taxable commercial business
operations as well. This requires, among other things, that losses and reductions of profit within the
individual taxable commercial business operations may not have developed due to donations to
members or due to disproportionately high allowances.

13. In a corporation consisting of several taxable commercial business operations, the question of
whether losses harmful to the public benefit are presen t, shall not be answered by means of the result
of the individual taxable commercial business oper ations, but by means of the summarized result of
all taxable commercial business operations. Based on this stipulation, the public benefit of a

– 41 –

corporation shall be considered endangered if the total taxable commercial business operations are
generating losses (cp. nos. 4 et sqq. pertaining to § 55).

With respect to the cases outlined in § 64, para. 5 and 6, not the estimated or globally determined
revenues, but the resulting profit according to the general regulations shall be considered (cp. nos. 4
to 6).

In regards to § 64, para. 3:

14. The amount of revenue from taxable commercial business operations shall be established according
to the principles of fiscal revenue assessment. With respect to tax-privileged corporations where the
revenue shall be determined according to § 4, para . 1 or § 5 EStG, the accrual of funds according to §
11 EStG shall be irrelevant, i.e. receivables payments shall be recorded as revenue as well. With
respect to other tax-privileged corporations, revenue accrued during the calendar year (§ 11 EStG)
shall be applicable. It shall be reviewed every y ear separately whether the revenue is exceeding the
taxation limits. With respect to the taxation limits (cp. no. 16), non service-related revenue shall not
be added to the relevant revenue.

15. Revenue according to § 64, para. 3 shall include service-related revenue including sales taxes from
current operations such as revenue from selling food and drinks as well as received payments of
deposits.

16. The following examples shall not be included in the service-related revenue according to no. 15:

a) revenue from sales of fixed assets resources of the taxable commercial business operations;
b) allowances for both operating expenses and for the procurement or production of assets of
the taxable commercial business operations;
c) investment allowances;
d) accrual of loans;
e) withdrawals according to § 4, para. 1 EStG;
f) liquidation of reserves;
g) reimbursed operating expenditures, e.g. business or sales taxes;
h) insurance services with the exception of the compensation for service-related revenue.

– 42 –

17. If a tax-privileged corporation is participating in a business partnership or community, the pro-rated
(gross) revenue from the participation, but not the share of the revenue, shall be relevant with respect
to the assessment whether the taxation limit has been exceeded. If a tax-privileged corporation is
participating in a corporate entity, payments according to § 8 b, para. 1 KStG as well as revenue from
sales of shares according to § 8 b, para. 2 KStG shall be recorded as revenue according to § 64, para.
3, provided the participation represents taxable co mmercial business operations (cp. no. 3) or is
sustained by taxable commercial business operations.

18. For the assessment of whether the taxation limits according to § 64, para. 3 have been exceeded, the
actual revenue shall be considered in the cases of § 64, para. 5 and 6.

19. Revenue from sports events not co nsidered single purpose operations according to § 67 a, para. 1,
clause 1 or – in case of an option – para. 3, shall be considered part of the revenue according to § 64,
para. 3.

Example:

A sports club that waived the application of § 67a, para. 1, clause 1 (limit of single-purpose
operations), realized the following revenue from commercial business operations during year 01:

Sports events without participation of paid athletes:
Sports events with the particip ation of athletes from the club:
Sales of food and drinks:

€ 35000
€ 20000
€ 5000
Revenue from commercial business operations not considered single purpose operations amounts to €
25000 (€ 20000 + € 5000). The taxation limit of € 30678 has not been exceeded.

20. Commercial activities shall not lose its character of taxable commercial business operations due to
the shortfall of the taxation limit. This means that no start of a partial tax exemption according to §
13, para. 5 KStG shall be considered present and therefore no final taxation shall be carried out

– 43 –

if corporate and business taxes are no longer imposed based on § 64, para. 3.

21. With respect to corporations for which the calendar year differs from the fiscal year, the revenue
realized during the fiscal year shall be relevant for the determination of whether the taxation limit has
been exceeded.

22. The general principle of the German Public Welfare Law stating that funds bindingly allocated to tax-
privileged purposes shall not be used for balancing losses from taxable commercial business
operations, shall not be cancelled by § 64, para. 3. In view of this, it shall not be necessary to review
the question of application of funds in case of shortf all of the taxation limit, if an estimated review of
the records indicates that no losses have developed within the taxable commercial business operations
(§ 64, para. 2).

23. Losses and profits from years in which the relevant revenue did not exceed the taxation limit shall not
be included in the loss deduction (§ 10 d EStG). Accordingly, loss carry backs and carry forwards can
only be accrued in those years in which the revenue is exceeding the taxation limit. The loss shall not
be used for years in which the revenue is not exceeding the taxation limit of € 30678.

In regards to § 64, para. 4:

24. § 64, para. 4 shall not be applicable to regional divisions (country, district and community
associations) of tax-privileged corporations.

In regards to § 64, para. 5:

25. § 64, para. 5 shall be applicable to the collection of recycled goods (collection and use of rags, paper,
scrap metal). The regulation shall not be applicable for the retail sale of used goods (trade of second-
hand goods). Consequently, bazaars and similar establishments shall not be privileged.

26. § 64, para. 5 shall be applicable only upon request of the corporation (electoral law).

– 44 –

27. With respect to the utilization of recycled paper, the industry-standard net profit shall be determined
at 5 % and at 20 % of the revenue with respect to the utilization of other recycled goods.

In regards to § 64, para. 6:

28. With respect to the above mentioned taxable commercial business operations, a profit of 15 % of the
revenue shall be assumed for the taxation upon request of the corporation. The request shall be
applicable to all similar activities within the respective assessment period. It shall not unfold a
binding effect with respect to subsequent assessment periods.

29. According to § 64, para. 6, no. 1, the profit arising from advertising activities shall be determined
globally, provided these activities are taking place in association with tax-privileged activities
including single purpose operations. The followin g are examples of such advertising activities:
advertisements on jerseys or along the sideboards du ring sports events which are considered single
purpose operations, or active advertising in programs or billboards on the occasion of cultural events.
The same shall be applicable to sponsoring activities according to no. 10.

The previous regulation according to which it was pos sible to charge global operating expenses of 25
% of the advertising revenue with respect to adver tising activities during sports or cultural events
shall no longer be applicable as of January 1, 2000.

30. As far as advertising revenue is not accrued in conn ection with non-material tax-privileged activities
or single purpose operations, such as advertising activities during a club festival or during sports
events which are considered taxable commercial bu siness operations due to the exceedance of the
limit of the single purpose operations according to § 67a, para. 1 or due to the utilization of paid
athletes, § 64, para. 6 shall not be applicable.

31. According to § 64, para. 6, no. 2 it shall be possible as well to establish the profit arising from the
totalisator operation by horse racing associations at 15 % of the revenue. The relevant revenue shall
be determined as follows:
Revenue from betting
minus race betting tax (totalisator tax)
minus payments to the wageres.

– 45 –

On § 64, para. 5 and 6:

32. If no request for estimation of the surplus or global determination of profit is made in the cases of §
64, para. 5 or 6, the profit shall be determined according to the general rules by means of comparison
of operating revenue and operating expenses (cp. nos. 4 to 6).

33. If the surplus is estimated according to § 64, para. 5 or globally determined according to § 64, para.
6, the corporation’s actual expenditures associated with it shall be considered compensated; it shall
not be possible to compensate them additionally.

34. If the surplus is estimated according to § 64, para. 5 or globally determined according to § 64, para.
6, the corporation shall be obligated to separately record revenue and expenses associated with this
revenue. The exact amount of revenue shall be required for the determination of profits according to
§ 64, para. 5 or 6. Expenses associated with thes e taxable commercial business operations shall not
reduce the result of the other taxable commercial business operations.

35. Sales tax contained in the gross revenue if applicable shall not be considered part of the relevant
revenue according to § 64, para. 5 and 6.”

15. The provision pertaining to § 65 shall be as follows:

“In regards to § 65 – Single purpose operations:

1. Single purpose operations shall be considered co mmercial business operations according to § 14.
However, from a fiscal point of view, commercial business operations shall be assigned to the
corporation’s tax-privileged ar ea under certain circumstances.

2. Single purpose operations shall serve the actual and i mmediate realization of objectives stipulated by
the Articles of Incorporation of the corporation op erating the single purpose operations. The pursuit
of objectives not stipulated in the Articles of Incorporation of the corporation supporting the single
purpose operations shall not be sufficient. Accordingly, it shall not suffice if it serves the indirect
realization of privileged purposes only , e.g. through payments of proceeds (
German Federal Finance
Court
verdict of August 21, 1985, German Federal Fiscal Gazette II, 1986, p. 88). Consequently,
single purpose operations shall serve the tax- privil eged purposes in their overall direction by means

– 46 –

of activities they have been based on and not merely based on achieved revenue ( German Federal
Finance Court
verdict of April 26, 1995, German Federal Fiscal Gazette II, p. 767).

3. An additional condition of single purpose operations is that they shall serve to achieve the
corporation’s objectives. The corpor ation shall require the single purpose operations necessarily and
directly for the realization of objectives outlined in the Articles of Incorporation.

4. Competition between single purpose operations and non- privileged operations of identical or similar
kind shall be limited to the extent necessary for the fulfillment of the tax-privileged purposes. Actual,
tangible competition with taxable operations of identical or similar kind shall not be required
(
German Federal Finance Court verdict of October 27, 1993, German Federal Fiscal Gazette II,
1994, p. 573). Therefore – contrary to the
German Federal Finance Court verdict of March 30, 2000
(German Federal Fiscal Gazette II, p. 705) – single purpose operations shall not be considered
existing if the competition with a taxable company would merely be possible, irrespective of the
actual local competition situation. In contrast, unlimited competition between single purpose
operations serving the same tax-privileged purpose and realizing it in identical or similar form shall
be considered harmless.”

16. The provision pertaining to § 66 shall be as follows:

“In regards to § 66 – Welfare work:

1. The provision contains a special regulation with respect to commercial business operations involved
in welfare work.

2. Welfare work shall not be carried out for the sake of income. Accordingly, no limitation compared to
the conditions with respect to selflessness shall be provided as it is established in § 55.

3. The activities shall be geared towards the care of pers ons in need and at risk. Persons in need or at
risk are defined as persons who fulfill one or both conditions mentioned in § 53, nos. 1 and 2. It shall
not be required that all activities are geared towards the support of persons in need or at risk. It shall
suffice, if two thirds of services are provided to an establishment serving persons in need or at risk.

– 47 –

The ratio between persons in need and at risk and other supported persons shall not be relevant.

4. Domestic care services provided by a tax-privileged corporation within the scope of the seventh or
eleventh book of the German Social Code, the Ge rman Federal Welfare Law or the German Federal
Benefits Act shall regularly constitute an establishment of welfare work.

5. The provision of food and drinks to students in cafeterias of student homes shall be considered a
single purpose operation. However, sales of alcoholic beverages, tobacco and other commodities
shall not amount to more than 5 % of the total turnover. Similar conditions shall be applicable for the
basic supply with food and drinks of students in schools.

6. The transport of sick persons who require or may require professional care or the utilization of the
special equipment available in pa tient transport ambulances or ambulances shall be considered a
single purpose operation. In contrast, the pure transport of persons for who the physician has
prescribed a patient transport (transport in car, taxi or rental car) shall not fulfill the criteria according
to § 66, para. 2.

7. Social events shall be treated as taxable commer cial business operations. Events where sociability
plays a role, but which are carried out primarily based on the objective to care for handicapped
persons shall be considered a single purpose operation based on the conditions outlined in § 65, § 66.

8. § 68 provides a list of examples relating to welfare work.”

– 48 –

17. The provision pertaining to § 67a shall be as follows:

“In regards to § 67a – Sport events:

General

1. Sports events organized by a spor ts club shall generally be considered single purpose operations,
provided the revenue including sales taxes from all sports events organized by the club is not
exceeding the single purpose operations limit of € 30678 per year (§ 67a, para. 1, clause 1). If the
revenue is exceeding the single purpose operations limit of € 30678, it shall generally be considered
taxable commercial business operations.

The club can opt to wave the application of the single purpose operations limit (§ 67a, para. 2). The
fiscal treatment of its athletic events shall then be carried out according to § 67a, para. 3.

2. All non-commercial corporations for which the promotio n of sports is stipulated in the Articles of
Incorporation (§ 52, para. 2, no. 2) shall be considered sports clubs according to the regulations; the
actual business management shall comply with the purpose outlined in the Articles of Incorporation
(§ 59). Consequently, § 67a shall be applicable to sports associations as well. It shall equally be
applicable for sports associations which organize th eir soccer events with the utilization of licensed
players according to the ‘player’s license system’ of “the Soccer League Association e.V. – League
Association”.

3. Athletic events shall be considered organizationa l measures organized by a sports club providing
active athletes (not necessarily members of the club) with the opportunity, to participate in athletic
activities (
German Federal Finance Court verdict of July 25, 1996, German Federal Fiscal Gazette
II 1997, p. 154). If the sports club provides an athletic presentation to another person or corporation
in compliance with the purposes outlined in the Ar ticles of Incorporation within the scope of an
event, it shall be considered an athletic even t as well. The event, during which the athletic
presentation is taking place, shall not necessarily be a tax-privileged event (
German Federal Finance
Court
verdict of May 4, 1994, German Federal Fiscal Gazette II, p. 886).

4. Sports trips shall be considered athletic events if the athletic activity represents a significant and
necessary part of the trip (e.g. travel to the site of competition). Trips w ith the main purpose of

– 49 –

recreation (tourist travel) however, shall not be considered athletic events, even if athletic activities
constitute a part of the trip.

5. Athletic training and further education shall be considered typical activities of a sports club.
Accordingly, sports courses and studies for both members and non-members of sports clubs (sports
education) shall be considered “athletic events”. It shall be harmless with respect to the single
purpose operations that the club is competing with commercial physical education instructors (e.g.
horseback riding, ski, tennis and swimming instructors) by offering athletic training, because § 67a
shall override § 65 as the more specific regulation. The assessment of the sports instruction shall not
be dependent on whether it is financed by means of contributions, special contributions or special
remuneration.

6. Sales of food and drinks – including sales to competit ors, umpires, referees, first aid workers etc. – as
well as advertising shall not be considered part of the athletic events. These activities shall be
considered separate taxable commercial business operations. According to § 64, para. 2 however, it
shall be possible to balance surp luses from these operations with losses from athletic events which
are considered taxable comme rcial business operations.

7. If a uniform admission price that includes service is ch arged for an athletic event, which is considered
a single purpose operation, it shall be divided into one part revenue for the admission to the athletic
event and one part revenue for services – if necessary by means of an estimate.

8. Please refer to nos. 28 to 35 of § 64 concerning the admissibility of a global profit assessment with
respect to the taxable “advertising” commercial business operation.

9. Nongratuitous transfer of the right to use of advert ising space within sports facilities owned by the
club or leased (e.g. on the sideboards) as well as loudspeaker systems provided to advertising
companies shall be considered tax-free asset admi nistration (§ 14, clause 3), provided that the
leaseholder (advertising company) is left with an adequate profit. It shall be irrelevant whether the
athletic events during which the advertising company is utilizing its rights is considered single
purpose or commercial business operations.

– 50 –

Nongratuitous transfer of the right to use of advertising space on sports clothing (e.g. jerseys, running
shoes, helmets) as well as sports equipment shall always be treated as taxable commercial business
operations.

10. Maintenance of club houses, cafeterias or club-run re staurants shall not be considered an “athletic
event”, even if these establishments are providing their services to members only.

11. With respect to rental of sports facilities includi ng operating equipment for athletic purposes, it shall
be differentiated between long-term and short-term re ntal (e.g. hourly rental, even if the hours are
determined in advance for a prolonged period of time).

12. Long-term rental shall be allocate d to the area of tax-free asset admi nistration; consequently it shall
not be treated as an “athletic event” according to § 67a.

Short-term rental of sports facilities and oper ating equipment merely creates the conditions for
carrying out athletic events. As such, it shall not be considered an “athletic event”, but commercial
business operations of its own kind. These shall be considered single purpose operations according to
§ 65, provided the lessees are members of the club. With respect to short-term lease to non-members
however, the club is competing to a larger extent wi th privileged lessors than is avoidable based on
the tax-privileged objectives (§ 65, no.3). Accordingl y, this type of lease shall be considered taxable
commercial business operations.

13. If movable objects such as tennis rackets and golf cl ubs are provided in association with the lease of
sports facilities and operating equipment as well, the nongratuitous provision of these objects shall
represent auxiliary business operations which share the fiscal fate of the main service (
German
Federal Finance Court
verdict of March 30, 200, German Federal Fiscal Gazette II, p. 705). In case
of the sole provision of sports equipment, e. g. an airplane, the single purpose operations
characteristics shall be determined according to wh ether the sports equipment is provided to members
or non-members of the club.

14. § 3, no. 26 EStG shall not be applicable for income provided to part-time training mangers etc. for
their activities within the taxable “athletic events” commercial operation.

– 51 –

15. If athletic events which were considered single purpose operations during the previous assessment
period become taxable commercial operations or vice versa, § 13, para. 5 KStG shall be applicable.

In regards to § 67a, para. 1

16. With respect to the single purpose operations limit of € 30678, all revenue of events taking place
during the respective year which ar e considered athletic events according to nos. 1 to 15, shall be
added. This revenue particularly includes admission and participation fees, payments for the
transmission of athletic events via radio and television as well as training and transfer fees. Please
refer to nos. 15 and 16 of § 64 with respect to the definition of revenue.

17. Payment of athletes within a single purpose operation according to § 67a, para. 1, clause 1 shall be
permitted (§ 58, no. 9). The provenience of the funds for payment of the athletes shall be irrelevant.

18. Payment of transfer fees within a single purpose operation according to § 67a, para. 1, clause 1 shall
be permitted without limitation.

19. With respect to players associations of sports clubs, it shall be decided at the time of the corporate tax
assessment of the sports clubs involved whether th ey are considered single purpose operations or
taxable commercial business operations – irrespective of the qualification of the revenue in the
association’s assessment notice -. With respect to the assessment of whether the single purpose
operations limit according to § 67a, para. 1, clause 1 has been exceeded, the amount of the pro-rated
revenue (as opposed to the pro-rated profit) shall be relevant.

In regards to § 67a, para. 2

20. It shall be possible to waive the application of § 67a, para. 1, clause 1, even if the revenue from
athletic events is not exceeding the single purpose operations limit of € 30678.

21. The option according to § 67a, para. 2 shall be revocable up to the incontestability of the corporate
tax assessment notice. The regulations contained in section 247, para. 2 and 6 of the German Sales
Tax Guidelines (UStR) 2000 shall be applicable accordingly. Revocation shall be possible effective

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the beginning of a calendar or fiscal year only – even after the termination of the period of
commitment.

In regards to § 67a, para. 3

22. If a sports club is waiving the application of the single operations limit (§ 67a, para. 1, clause 1)
according to § 67a, para. 2, athletic events shall be considered single purpose operations, provided
none of the club’s paid athletes is participating and the club is not paying athletes outside the club by
itself or in association with a third party. The amount of revenue or surplus of these athletic events
shall not be relevant with respect to the application of § 67a, para. 3. Athletic events in which one or
more paid athletes according to § 67a, para. 3, clause 1, no. 1 or 2 are participating shall be
considered taxable commercial business operations. According to the law, it shall be irrelevant
whether a club has considered an event as taxabl e commercial business operations or whether – for
whatever reasons – single purpose operati ons were initially assumed by mistake.

23. Events according to § 67a, para. 3 shall be considered individual competitions for all types of sports
which are carried out in close chronological and lo cal interrelation. Consequently, in case of team
sports, every individual championship game shall be considered an athletic event as opposed to the
complete championship round. With respect to tournaments, it shall be dependent on the individual
case whether the complete tournament or individual games shall be considered an athletic event. It
shall be of particular significance in this respect whether separate admission is charged for every
game and whether revenue and expenditures are determined separately for every game.

24. Based on the application of § 67a, para. 3, sports courses and instruction for both members and non-
members of sports clubs shall be treated as single purpose operations, provided no athlete considered
a paid athlete according to § 67a, para. 3 based on his activities is participating as a trainee. The
payment of trainers shall not affect the single purpose operations characteristics.

25. If an athlete is considered a paid athlete during a cal endar year, all athletic events in which the athlete
participates held during this calendar year sh all be considered taxable commercial business
operations. If the fiscal year differs from the calend ar year, the fiscal year shall be applicable.

– 53 –

It shall be irrelevant whether the athlete fulfills the characteristics of a paid athlete only after the
athletic event has been held. Participation of unpaid athletes in an event in which paid athletes are
participating as well shall not have an influence on the treatment of the event as taxable commercial
business operations.

26. The full extent of compensations or other advantages shall be provided from taxable commercial
business operations or third parties (§ 67a, para. 3, clause 3). Division of the compensation shall not
be permitted. Consequently, it shall not be permitted from a fiscal point of view, to treat
compensations to paid athletes up to € 358 per month as expenses of the tax-privileged area, while
only the compensation exceeding € 358 is treated as a taxable “athletic events” commercial business
operation.

27. In addition, any other expenses shall be paid either from the taxable “athletic events” business
operation, other taxable commercial business operations or by third parties. This shall be equally
applicable if both paid and unpaid athletes are participating in the event. Consequently, expenses of
the taxable “athletic events” commercial business operation shall not be divided based on whether
they are used for paid or non-paid athletes. Possibl e lump-sum compensation to unpaid athletes for
the participation in an event with paid athletes sh all be treated as an expense of this event. For
simplification reasons however, it shall not be obje ctionable if the lump-sum compensation (cp. no.
31) to unpaid athletes is not treated as oper ating expense of the taxable commercial business
operations, but is paid from funds of the non-material area.

28. Training expenses (e.g. compensation to trainers) concerning both unpaid and paid athletes shall be
divided according to the possibilities for division in the individual case. Some examples are: the
respective time involved or – in case of simultaneous training of unpaid and paid athletes, the number
of trained athletes or teams. As far as the division is not possible otherwise, the costs applicable to the
training of both unpaid and paid athletes shall be determined by means of an estimate.

– 54 –

29.

If both paid and unpaid athletes of a team are training simultaneously for an event considered a
taxable commercial business operation, the total training costs shall be considered expenses of the
taxable commercial business operation. The simplification regulation contained in no. 27 shall be
applicable accordingly.

30. Not only (active) members of the club, but all at hletes performing for the club shall be considered
athletes of the club according to § 67a, para. 3, clause 1, no. 1, i.e. any athlete participating in one of
the club’s teams. No. 37 shall be applicable with respect to associations.

31. Monthly payments to an athlete of up to € 358 based on an annual average shall be considered
compensation without requiring individual proof with respect to the assessment of the single purpose
operations characteristics of the athletic events – but not with respect to the taxation of the athlete –.
If the expenditures are higher, the total expenses shall be accounted for individually. They shall
include expenditures of personal or factual kind, which shall be considered advertising costs or
operations expenses, based on their merits.

The regulation shall be applicable to any type of sports.

32. The regulation on the harmlessness of lump-sum compensations of up to € 358 per month based on
an annual average shall be applicable to the club’s athletes only, but not to payments to other athletes.
Accordingly, it shall not be possible to pay an amount of up to € 4296 as lump-sum compensation to
an athlete who participates in one of the club’s an nual events only. In fact, every payment to an
athlete according to § 67a, para. 3, clause 1, no. 2 exceeding the compensation of an actual expense
shall result in the loss of the event’s single purpose operations characteristics.

33. Allocations provided by the German Sports Aid Foundation, Frankfurt and comparable
establishments providing sports aid to top athletes shall normally be considered a substitution of
special expenses related to the activities of the top at hlete. Therefore, they shall not be included in the
permissible lump-sum compensation of € 358 per month based on an annual average. If athletes
provide actual proof of expenditures, it shall includ e any expenses offset by allocations provided by
the German Sports Aid Foundation and comparable establishments as well.

– 55 –

34. With respect to the assessment of single purpose operations characteristics of a sports event
according to § 67a, para. 3, it shall not be necessa ry to distinguish whether compensations or other
advantages to an athlete are provided for the particip ation as such or for the successful participation.
It shall be relevant only that the athlete gains advantages, which he would not have received without
his participation. Accordingly, payment of a reward exceeding the compensation shall constitute a
taxable commercial business operation.

35. With respect to a so-called game trainer, it shall be distinguished whether he receives compensation
for the training activities or for performing the sport. If he is paid for the training activities only
without receiving more than the substitution of expenses for the activities as a player (cp. no. 31), his
participation in athletic events shall be considered harmless with respect to the single purpose
operations characteristics.

36. Unpaid athletes shall not become paid athletes du e to their participation in events alongside paid
athletes. The training of these athletes shall still be considered a tax-privileged activity of a sports
club, unless they are being trained together with paid athletes for an event that is considered a taxable
commercial business operation (cp. no. 29).

37. Athletes who belong to a certain sports club and who are not direct members of a sports association,
shall be considered other athletes according to § 67a, para. 3, clause 1, no. 2 with respect to the
assessment of the single purpose op erations characteristics of events organized by the club. In these
cases, the club’s payments to athlet es in connection with athletic events organized by the associations
(e.g. competitions between countries) shall be treat ed as “payments by third parties in connection
with the club” (i.e. association).

38. Transfer payments paid to a tax-pr ivileged sports club for the release of athletes shall not affect its
public benefit. The payments received shall coun t as revenue from the taxable “athletic events”
commercial business operation, provided the athl ete changing the club has been a paid athlete
according to § 67a, para. 3, clause 1, no. 1 during th e past 12 months prior to his transfer. Otherwise
they shall be considered part of the revenue fro m the “athletic events” single purpose operation.

39. Payments from one tax-privileged sports club to anot her (releasing) club for the transfer of an athlete
shall be considered harmless for the public benefit of the paying club, provided they are paid from

– 56 –

taxable commercial business operations for the transfer of an athlete who shall be considered a paid
athlete by the receiving club according to § 67a, para . 3, clause 1, no.1 during the first twelve months
following the change of clubs. Payments for an athl ete who shall not be considered a paid athlete by
the receiving club, shall be considered harmless to th e public benefit of the paying club according to
§ 67a, para. 3 only, if the athlete changing the club is compensated solely for the training costs. This
type of reimbursement of up to € 2557 per athlete shall be possible without any problems. All
training expenses shall be accounted for separately with respect to higher reimbursement expenses.
The payments shall not reduce the surplus of th e taxable “athletic events” commercial business
operations.

Please refer to nos. 16 and 18 with respect to the fi scal treatment of transfer payments based on the
application of the single purpose operations limit according to § 67a, para. 1, clause 1.

18. The provision pertaining to § 68 shall be as follows:

“In regards to § 68 – Individua l single purpose operations:

General

1. § 68 contains a legal catalog of individual single purpose operations and shall be overriding the
regulation of § 65 as a special standard. The examples of operations which shall be considered single
purpose operations according to type provides important indications for the interpretation of the
terms single purpose operation (§ 65) in general and establishments of welfare work (§ 66) in
particular.

In regards to § 68, no. 1:

2. Please refer to § 1 of the German Nursing Home Law for a definition of the terms “retirement homes,
retirement residences and nursing homes”. A cafeteria accessible to the public shall be considered a
taxable commercial business operation. As far as a tax-privileged corporation provides services
within the scope of domestic care, it shall usually be considered a single purpose operation according
to § 66 (see no. 4 of § 66).

– 57 –

3. With respect to kindergarten, children’s, youth and student homes as well as school cottages and
youth hostels, the persons supported shall not be required to fulfill the conditions according to § 53.
Youth hostels shall not lose their single purpose oper ations characteristics, if the number of adults
traveling alone is not exceeding 10 % of all acco mmodations outside its purpose stipulated in the
Articles of Incorporation (
German Federal Finance Court verdict of January 18, 1995, German
Federal Fiscal Gazette II, p. 446).

In regards to § 68, no. 2:

4. Particularly so-called self-supply establishments wh ich are part of a tax-privileged corporation shall
be supported. With respect to deliveries and services to outsiders, the corporation is entering a
performance relationship with third parties. As long as the extent of business with third parties
including service recipients which are themselves considered a tax-privileged corporation according
to § 68, no. 2 (
German Federal Finance Court verdict of October 18, 1990, German Federal Fiscal
Gazette II, 1991, p. 157) is not exceeding 20 % of the total deliverie s and services of the privileged
corporation, the single purpose operations characteristics shall remain intact.

In regards to § 68, no. 3:

5. Please refer to § 136 of the German Social Code – book nine – (SGB IX) for a definition of the term
“sheltered workshop”. It is an establishment intended for the rehabilitation of handicapped persons.
Shops or outlets run by sheltered workshops shall be treated as single purpose operations, provided
the products sold have been produced by the members of the sheltered workshop. If other goods
bought by them are sold which have not been manufactured by other sheltered workshops, it shall be
considered a separate commercial business operation.

6. The cafeterias operated by the sponsors of the sheltered workshops shall be considered single purpose
operations as well, because the particular situation of handicapped persons makes care necessary
even during meals.

7. Occupational and work therapy establishments which serve the rehabilitation of handicapped persons
are special facilities where handicapped persons are treated based on a physician’s recommendations.

– 58 –

While the objective of occupational therapy is the re-establishment of the basic physical or
psychological functions for rehabilitation, work therapy is intended to train and promote the special
skills required for participating in the working world. Both occupational and work therapy are
characterized by the medical tr eatment purpose and shall be ca rried out regularly outside an
occupational relationship to the sponsor of the therapeutic facility. Whether a corresponding facility
is available shall be determined based on negotiations regarding type and extent of treatment and
rehabilitation between the facility’s sponsor and the funding agency.

In regards to § 68, no. 4:

8. Privileged facilities shall primarily be considered workshops for the care of blind and physically
handicapped persons.

In regards to § 68, no. 6:

9. Lotteries and draws shall be considered single purpose operations, provided they are approved by the
corresponding authorities or they ar e considered globally approved based on the administrative order
contained in the country’s legal provisions due to the minor incidence of raffle or lottery events. Both
factual conditions and responsibility for approval shall be based on the lottery-related laws of the
respective country. The wording of the law does not clarify to which extent such lotteries may take
place. Because the particular limitation is missing, extensive activities shall remain harmless as long
as the general limitations according to the law are not exceeded and the corporation is not losing its
characteristics as privileg ed facility due to the extent of the lotteries.

10. With respect to the determination of the net reve nue from lotteries or draws, only those expenses
directly associated with them may be offset. If a ta x-privileged corporation is organizing a lottery,
which cannot be approved according to the racing, betting and lottery law, such as for example a
tombola on the occasion of a social event, it shal l not be considered a single purpose operation
according to § 68, no. 6.

– 59 –

In regards to § 68, no. 7:

11. Due to the extent of the scope encompassing the promotion of the arts and culture, the list of cultural
facilities contained in the law shall not be considered conclusive.

12. Cultural facilities and events according to § 68, no. 7 shall be present if the promotion of culture is
included in the objectives of the Articles of Incorporation. They shall always be treated as single
purpose operations. The
German Federal Finance Court verdict of May 4, 1994 (German Federal
Fiscal Gazette II, p. 886) on athletic performances of a sports club (cp. no. 3 of § 67a) shall be
applicable accordingly for cultur al performances. Consequently, it shall be considered a cultural
event of the corporation even if the corporation pres ents a cultural show within the scope of an event
not organized by the corporation itself and not cons idered a cultural event according to § 68, no. 7.
For example, if a tax-privileged music club, which serves the promotion of folkloristic music, is
performing a nongratuitous folkloristic concert in the tent of a brewery, the performance by the music
club shall be considered a cultural event, which is part of the single purpose operation.

13. The sale of food and drinks as well as marketing activities during cultural events shall not be
considered part of the single purpose operation. These activities shall be considered separate
commercial business operations. If a uniform admission fee is paid for visiting a cultural event
including service, it shall be divided into a part of revenue each for the visit of the event (single
purpose operation) and for the services (commercial business operation), if necessary by means of an
estimate.

In regards to § 68, no. 9:

14. Please refer to the letter from the German Federal Ministry of Finance (BMF) dated September 22,
1999 (German Federal Fiscal Gazette I, p. 944).”