In a recently published circular, the Federal Ministry of Finance (MoF) commented on the minimum running period of profit and loss pooling agreements (PLPA) and on partnerships acting as controlling entities. The current letter now supersedes the previous letter on these subjects of 10 November 2005 in its entirety.
In a recently published decision, the Supreme Tax Court held that a commercial activity as stated in Section 14 (1) no. 2 sentence 2 Corporation Tax Act also exists if the controlling partnership acts exclusively as managing holding company. Intra-group services for other additional commercial activities are not required.
An untypical silent partnership in the controlled group company does not generally prevent the recognition of a consolidated tax group for corporation tax purposes. With this current decision, the Supreme Tax Court disagrees with the previous opinion of the tax authorities.
If a corporation is merged into its parent company, which in turn is a controlled company within a corporation tax group (fiscal unity/“Organschaft”) with a corporation as the controlling company (“Organträger”), the Supreme Tax Court has ruled that no flat-rate deemed business expenses are to be added back to profits under Section 8b (3) sentence 1 of the German Corporation Tax Act (CTA) either at the level of the parent company or at the level of the controlled company, where the said non-deductible flat-rate deemed business expenses are derived from a merger gain.
