In its decision of 12 May 2016 the Supreme Tax Court held that -in the case of a two-tier partnership structure- the trade tax loss carry-forward of the lower-tier partnership is fully eliminated, if the upper-tier partnership, which holds a 100% -interest in the income and assets of the lower-tier partnership, is merged down-stream and thus ceases to exist. Referring to previous case law, the Court’s reasoning was that the upper-tier partnership, as co-entrepreneur of the lower-tier partnership, was also the holder of the partnership’s trade tax loss-relief.
Tax & Legal
The Constitutional Court has rejected a claim that the trade tax charge on companies is unconstitutional in that companies are treated differently from natural persons.
The Lower Tax Court of Rhineland Palatinate held that the income adjustment provision of the Foreign Tax Act as amended in 2003 might not be in accordance with EU-law and has referred the case to the ECJ for further clarification. The focus of the judicial review is on the tax consequences of a business relationship with a related party and where the terms do not meet the third party comparison test.
The Supreme Tax Court refused leave to appeal on a case involving the double tax residence of a German unlimited taxpayer.
The ECJ held that the German inheritance and gift tax option for taxation as a resident does not fully resolve the conflict with EU law from the lower personal allowances for non-residents. In consequence and considering an earlier ECJ judgment of April, 2010 the referring Lower Tax Court now finally ruled in favour of the taxpayer.
The Federal Supreme Tax Court upheld a decision of the Münster Tax Court and held:
Where the total value of the goodwill of a business/business unit, which has been contributed into a corporation as a contribution-in-kind under the terms of the Reorganisation Tax Act, does not exceed the total book values of the individual business assets because of the existence of negative goodwill, the acquiring company may not step-up the book values of the individual assets of the business property to a higher value, even if the fair market value of those individual assets exceeds their book value.
The Supreme Tax Court considers a sale-and-lease-back transaction as a taxable other service rather than a lease or the tax-exempt grant of a loan if the chosen scenario is a reasonable non-tax driven choice of form used to enable the seller (lessee) to enjoy certain accounting and reporting benefits.
Dividend withholding tax paid by a foreign intermediary company may not be deducted from the taxable income of the local shareholder of a German company if the entire arrangement is abusive and if, therefore, the dividend income is to be allocated to the German shareholder.
The new German Inheritance and Gift Tax Act which was presented by the German government in June 2016 in order to meet the standards set by the German Constitutional Court is delayed: The representatives of the German provinces (Bundesrat) did not accept the package.
In this issue: Supreme Tax Court Cases, From Europe and From PwC