The Supreme Tax Court had to decide on the profit allocation between Germany and the Netherlands in the case of construction sites. Among other things, the court held that the portion of the trading income which is attributable to the foreign permanent establishment (as not having been earned in Germany) must be eliminated from the trade tax basis according to Section 9 No. 3 Trade Tax Act even if Germany would not be prevented from taxing the entire trading income under the relevant double tax treaty.
The ECJ held that services by an EU head office, who is part of a VAT group, to its foreign branch are in general subject to VAT if the cost of such services are charged to the branch. For VAT purposes head office and its branch located in another Member State must be regarded as separate taxable persons.
The ECJ has confirmed a German provision for the recapture of foreign branch losses previously deducted on sale of the foreign permanent establishment.
An ECJ advocate general has suggested the court rule that a German rule requiring a bank to submit information to the tax authorities on the accounts of German residents held in foreign branches is a hindrance on the freedom of establishment justified by the need to ensure fair and uniform taxation. If this obligation conflicts with the laws of the other state, that state should allow its fulfilment, provided that fulfilment is not excessive.
An ECJ advocate general has suggested that neither the German refusal to allow a deduction for branch losses incurred in other member states, nor the recapture provision in the event of disposal of the branch offend against community law.
