Tax & Legal

The Federal Constitutional Court held that the retroactive introduction of Sec. 14 (3) Corporation Tax Act concerning the treatment of over-surrenders arising from periods prior to the membership in an Organschaft (tax consolidation group) to be in part unconstitutional and thus invalid.

An amendment to a statutory law which was passed by the Bundestag and Bundesrat in December 2020, entered into force on 1 January 2021, requires a review of those profit and loss pooling agreements concluded and last amended before 27 February 2013. This pertains to profit and loss pooling agreements (PLPA) for tax groups (“Organschaft”) with a GmbH as controlled subsidiary and which do not (yet) contain an explicit and unconditional reference to Section 302 of the German Stock Corporation Act (GSCA) which includes future changes of the provision (so-called “dynamic reference”).

On 8 November 2018, the Finance Bill 2018 was adopted by the German parliament and received the consent of the Bundesrat on 23 November 2018 in the form of “The Act for the Avoidance of VAT Losses on the Trading of Goods on the Internet and Amendments to other Tax Regulations”(hereafter “Finance Act 2018”).

According to a decision of the Supreme Tax Court published on 9 November 2017 a profit pooling agreement will not be recognised for tax purposes where the compensation agreement with the external shareholder contains both the right to a variable compensation payment calculated on the basis of the profits of the subsidiary/controlled company/"Organgesellschaft" (“subsidiary”) and a fixed amount.

The finance ministry has decreed that a company with an untypical silent partner cannot be a member of a corporation tax group.

The Supreme Tax Court has held that restricting a trade tax privilege to domestic units of a tax group does not infringe a group’s freedom of Establishment.

The Supreme Tax Court has held that an Organschaft parent must be an active business by the effective date of the first profit surrender, i.e. the first year end of the subsidiary. It also held that the provision allowing profit pooling agreements with formally inadequate loss subvention provisions to be corrected by December 31, 2014 applies to all agreements existing on February 26, 2013 regardless of the nature of the inadequacy.

The finance ministry has redefined the organisational integration requirement for a VAT group.

The finance ministry has decreed that a Supreme Tax Court judgment accepting a British company as the parent of a trade tax Organschaft is not to be followed as a precedent.

The Supreme Tax Court has refused an Organschaft subsidiary the trade tax property company exemption because it only let within the Organschaft.

The Supreme Tax Court has held that a company with an “untypical” silent partner cannot surrender its entire profit to its parent and thus cannot conclude the profit pooling agreement necessary for an Organschaft.

The Supreme Tax Court has held that failure to recognise a British company as an Organschaft parent infringes the tax treaty prohibition on discrimination.

The Supreme Tax Court has held that a profit pooling agreement must run for five full years, i.e. 60 months, for tax recognition.

In response to an infringement proceeding of the European Commission, the finance ministry has decreed that EU/EEA registered companies with their place of management in Germany are entitled to join an Organschaft as subsidiaries.

The Supreme Tax Court has held that a VAT group parent must be the qualifying shareholder of its subsidiaries.

The Supreme Tax Court has held that there is no serious doubt that a profit pooling agreement must provide for a ten year statute bar on loss subvention claims of an Organschaft subsidiary.

The Supreme Tax Court has rejected an Organschaft as the profit pooling agreement was not properly implemented when the annual profit was surrendered without covering losses brought forward.