Explanation of terms and legal framework for the financing of the foreign internship
Definition of financing of the foreign internship
The financing of the foreign internship refers to all financial measures and resources required to complete a compulsory or elective part of the legal traineeship (Referendariat) outside Germany—typically in a foreign authority, court or law firm, or in an international organization. The legal design of the financing touches on many aspects of public service law, subsidy law, and partially also European law.
Legal basis of the financing of the foreign internship
Statutory basis in German law
The legal requirements for financing the foreign internship primarily arise from the respective laws on the education of jurists (JAG) of the federal states, the associated ordinances, as well as from the state civil service law, insofar as trainees are classified as civil servants on revocation. The relevant regulations are:
- Laws on the education of jurists of the federal states (JAG)
- Jurist education and examination regulations
- Civil service regulations, in particular regarding payment and travel expenses
- Budgetary requirements
Obligations and possibilities for completing a foreign internship
The possibility of completing a placement abroad is regularly provided for by law (§ 35 para. 3 DRiG and the corresponding provisions in the state laws). There is no general entitlement to reimbursement of financing costs abroad; rather, this is determined by the relevant regulations and decisions of the training judicial administration.
Types of financing for the foreign internship
The financing of the foreign internship can occur in various ways:
- Public funding
– Travel expense reimbursement: For civil servants on revocation (trainees), the reimbursement of travel expenses according to the Federal Travel Expenses Act (BRKG) or the relevant state travel expenses act is possible, although foreign travel is often excluded from reimbursement or is only reimbursed under strict conditions.
– Maintenance allowances: With regard to the ongoing maintenance allowance, there are no statutory special provisions for a foreign internship. Trainees continue to receive their entitled maintenance allowance as long as the placement is properly completed.
- Private funding
– Own funds: In many cases, trainees must privately finance the additional costs incurred by the foreign internship (travel, accommodation, living expenses, insurance).
– Grants and subsidies: External funding, for example from the DAAD, European exchange programs, or German foundations, can be used to support the placement. The legal requirements and framework conditions are determined by the respective funding programs.
- Third-party funding
– Funding by host institution: In some cases, the foreign training institutions cover all or part of the financial expenses, which requires appropriate legal agreements (scholarship contracts, internship agreements, etc.).
Tax and social security aspects
Tax treatment
The receipt of maintenance allowances and any scholarships during the foreign internship may be relevant from a tax perspective. § 3 No. 44 EStG (tax exemption for benefits/scholarships for scientific or artistic purposes) and the regulation for expense allowances are particularly relevant. The decision on the tax treatment of reimbursements or grants is always made on a case-by-case basis.
Social law
As civil servants on revocation, trainees are obliged to ensure proper social security coverage (health, accident, liability insurance), especially abroad. The costs of necessary insurance may, depending on the country’s laws, be reimbursable or must be borne privately.
Specific regulations in the federal states
Differences by federal state
There are different regulations among the federal states regarding the reimbursement and financing of the foreign internship. While some states expressly exclude travel expenses outside Germany from reimbursement, others offer limited or flat-rate subsidies for certain stays abroad (e.g., North Rhine-Westphalia, Hesse with special subsidies or scholarship programs). Timely information and application to the competent Higher Regional Court or training authority are important.
Approval procedures
Before the approval of travel expenses or grants, formal applications must be submitted in accordance with administrative regulations. In addition, the educational and official necessity of the foreign internship must be demonstrated.
Legal remedies
Administrative legal protection
Negative decisions regarding the financing can be reviewed as part of application or objection procedures. If necessary, it is possible to bring an action before the administrative courts.
Principle of equal treatment and prohibition of discrimination
Measures regarding the granting or refusal of funding must comply with the general principle of equal treatment under Article 3 of the Basic Law. Discrimination against individual trainees in the allocation of funding is legally contestable.
International law and European law
Principles of mobility
European legal requirements (freedom of movement, freedom of establishment) and international agreements (including the Bologna Process) must be observed in the context of financing and state support. Funding programs of the European Union (e.g., ERASMUS+) can be used in addition to national funding.
Special features of intergovernmental cooperation
Completing a placement at international organizations may give rise to specific public international law issues, e.g., concerning accommodation, residency rights, and immunity issues. In these cases, separate rules on financing and security must be observed, such as additional foreign allowances.
Summary
The financing of the foreign internship in the context of the traineeship is regulated in a complex manner and depends largely on the respective state legislation, budgetary frameworks, and possible third-party funds. Individual planning should always take into account the relevant legal bases, funding possibilities, as well as social and tax implications. Legal protection options exist in case of disputes over cost coverage or grant allocation. International and European law provisions can influence the framework conditions and offer additional funding opportunities.
Frequently asked questions
What legal framework conditions must be taken into account when financing a foreign internship?
The financing of a foreign internship is subject to a multitude of national and international legal provisions. The relevant framework conditions include foreign trade law, international tax law, and country-specific investment regulations. In the German context, the provisions of the Foreign Trade and Payments Act (AWG) and the Foreign Trade and Payments Regulation (AWV) must especially be observed, which, among other things, prescribe reporting obligations for capital transfers. Moreover, approval requirements may exist for direct investments abroad. In the target country, it must be examined whether, and under what conditions, foreign investors may contribute funds, whether there are restrictions regarding the amount of participation, and whether certain sectors are subject to special regulatory provisions. In addition, the respective foreign exchange regulations of the host country and potential duplications in bilateral investment protection agreements must be taken into account.
What tax aspects and legal requirements are relevant when financing foreign branches?
The tax treatment of the financing of a foreign branch is relevant both in Germany and in the respective host country. Important factors are the design of profit and loss transfer agreements, the recognition of transfer pricing for intra-group loans, and compliance with documentation obligations according to § 90 para. 3 AO and the OECD transfer pricing guidelines. Many double taxation agreements (DBAs) contain regulations aimed at avoiding double taxation of profits, but also specify rules for thin capitalization, interest limitation, and withholding tax obligations for minimally substantiated financing. A detailed tax analysis of the chosen form of financing (equity, debt, hybrid forms) and an appropriate contractual design are therefore essential.
What approvals must be obtained for the transfer of capital abroad?
Currently, according to German law, there is generally no approval requirement for pure capital exports, unless embargoed countries or sanctions apply. Reporting obligations pursuant to the AWV still apply, especially for payments to and from abroad exceeding 12,500 euros (§§ 59 et seq. AWV). In some target countries, official approvals may be required for foreign direct investments; these may depend on the sector, the investment amount, or the type of business activity. In certain sectors, such as the financial or energy sector, there are often additional regulatory requirements and restrictions. In addition, antitrust regulations and investment control procedures must be considered, for example under the Foreign Trade and Payments Regulation for particularly security-relevant enterprises.
What is the role of accounting and reporting obligations in the financing of foreign branches?
Companies that finance foreign branches must comply not only with the commercial accounting regulations in Germany (especially the HGB), but also with the accounting requirements in the host country. This may necessitate so-called dual reporting if the accounting standards in both countries differ significantly. For listed companies, the regulations required by international accounting standards such as IFRS/IAS or US GAAP must also be observed. In addition, extensive documentation and proof requirements must be implemented for intra-group financing, which also encompass transfer prices and the arm’s length nature of financing conditions.
What legal requirements apply to the collateralization of financings abroad?
The provision of collateral for financings of foreign branches is generally subject to the regulations of the respective country, regarding legal admissibility, form, and enforceability of the collateral. While Germany has established security interests in real property (such as mortgages or land charges), other countries may have completely different types of collateral (e.g., floating charges, pledges) and registration requirements. These often include specific formal requirements, such as public notarization or entry in the land registry or a host country register. Furthermore, it should be noted that some states have restrictions regarding the enforceability or challengeability of security in favor of foreign creditors or parent companies.
What is the significance of anti-money laundering (AML) regulations in the financing of foreign branches?
On both national and international levels, it must be ensured in cross-border financing structures that all transactions comply with regulations for the prevention of money laundering and terrorist financing (AML/CFT). According to the German Money Laundering Act (GwG), European AML directives, and country-specific laws in the host state, in particular, the origin, recipient, and intended use of the funds must be proven and documented beyond doubt. Suspicious cases must be reported to both domestic and foreign authorities. Banks and financial intermediaries therefore usually conduct careful identity verification (KYC – Know Your Customer).
What legal risks are associated with the financing of foreign branches?
Legal risks include, among others, the invalidity or challengeability of financing agreements due to inadequate performance of the contract, lack of, or insufficient, approval, violation of foreign exchange or tax laws, as well as defective risk coverage or insufficient collateralization. Possible political risks (e.g., expropriation, capital controls, tax increases) or the application of investment protection agreements may also affect the enforceability and security of the financing. Careful legal risk management, regular compliance checks, and the involvement of professional advisors are therefore strongly recommended.