The German Professional Code of Ethics prohibits attorneys from providing their services as a corporation. The partnership bylaws determine how much compensation each attorney receives in a domestic law firm. Applying the transparency principle, if the law firm has a foreign office, each partner in the domestic law firm is regarded as having a foreign office. Consequently, each partner receives compensation for professional services which were generated by the foreign office. In the case where the German partner is residing in a foreign country, the question arises whether he is subject to limited tax liability for the income generated by the domestic office.
Profits generated by the foreign office are never taxable in Germany.
Professional compensation earned by the partner residing in a foreign country is subject to limited tax in Germany if he either renders his professional services in Germany or his services are used in Germany. Thus, our discussion will be limited to the rendering of services in Germany. The first question to be answered here is where professional services are rendered. Determining where professional services are rendered is not always simple. As opposed to manual work, which is relatively easy to locate, it is not always obvious where professional services take place.