The German Finance Ministry has commented on possible profit adjustments under Sec. 1 Foreign Tax Act with respect to the use of group name and logo between the taxpayer and a related party.
Tax & Legal
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 finance ministry has decreed that Supreme Tax Court judgments limiting the income adjustments under the Foreign Tax Act to questions of amount are not to be followed as precedents prohibiting adjustments by reason of the nature of the transaction under review.
The Supreme Tax Court has held that an income adjustment for the interest lost on an interest-free loan to a foreign subsidiary can be made under the Foreign Tax Act unless the loan was granted as a substitute for share capital.