The German Supreme Tax Court has referred a question to the Court of Justice of the European Union (ECJ) concerning the compatibility of German tax law with the EU Merger Directive's tax-neutrality provisions (Article 7(1) of Directive 2009/133/EC). The key issue is whether a Member State can impose a flat-rate non-deductibility rule on business expenses—specifically, a 5% add-back of tax-exempt merger gains resulting from a parent company absorbing its subsidiaries.
In a recent judgement, the Federal Social Court confirmed the German Pension Insurance of Oldenburg-Bremen’s opinion and thus overturned the decisions of the lower courts. At the heart of the case was the question of whether expenses for an office anniversary celebration, which amounted to more than EUR 110 per employee and was only subjected to flat-rate taxation on a date well after the pay slip was issued, were subject to social security contributions.
