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.
France has chosen to exercise the option of Article 11 of the VAT Directive as of 1 January 2023 and to provide for the establishment of a VAT group if certain requirements are met. With this new optional regulation in force France joins most other EU countries providing for one VAT entity for the whole group and a single VAT registration in this respect.
Today, the European Court of Justice (ECJ) published two long-anticipated decisions dealing with German VAT groups. Following our preliminary, quick review of the decision, a “crash” of the current VAT group concept has not transpired. Whilst on the one hand, the financial integration in a VAT group may be eased in future, on the other hand, the ECJ addresses an “independence” of the VAT group affiliates – the practical impact of which is unclear for the time being.
Pending before the ECJ are currently two questions of relevance regarding the German regulation of consolidated tax groups for VAT purposes (VAT group). In her Opinion on both cases the Advocate General takes the view that the sole taxable person is, in principle, the VAT group itself and not (as under German VAT law) the controlling member of the group.
In two judgments published in April 2025, the Supreme Tax Court decided that a corporation in which there is an atypical silent partnership can be a subsidiary within a corporation tax group. With its rulings, the court deviated from an earlier opinion of the tax authorities. The Federal Ministry of Finance has now commented on the consequences of the two judgments.
The Supreme Tax Court decided that the portfolio dividends received by the controlled company within a tax group from domestic and foreign corporations via an investment fund are subject to trade tax in full. A deduction of foreign withholding taxes in accordance with Section 34c (2) of the German Income Tax Act is not possible when determining the trade income tax basis of the tax consolidation group (Organschaft).
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.
The Supreme Tax Court decided that the “switch-over" provision in the respective tax treaties with Russia and Romania, which changes the exemption method to the credit method, was to be applied by observing the activity requirements set in Section 8 (1) of the German Foreign Tax Act.
In case of merger of a corporation into a partnership during the year the Supreme Tax Court decided that the acquiring legal entity as the ("new") controlling company also fulfills the requirement of financial integration as a prerequisite for a tax group („Organschaft“) of the former controlling company even if the conversion is not made with retroactive effect from the beginning of the financial year.
In a case previously dealt with by the European Court of Justice the Supreme Tax Court saw the need for yet another preliminary ruling regarding the current German VAT situation of non-taxable intra-group transactions. In his Opinion the Advocate General takes the view that a VAT group’s internal transactions do not fall within the scope of value added tax.
The European Court of Justice must currently review an Italian regulation that prevents certain companies from benefiting from a more favorable rule regarding the deductibility of interest expenses in the case of a cross-border group taxation scheme solely because their common parent company is resident in another Member State. Advocate General Juliane Kokott presented her Opinion on the matter and suggests the court decide that such national legislation is not hindered by the freedom of establishment under Articles 49 and 54 TFEU.
The profit pooling agreement under the concept of a tax consolidation group (Organschaft) must be concluded for at least five years and be followed throughout its entire term. According to the decision of the Supreme Tax Court recognition of the Organschaft is to be denied with retroactive effect if preliminary annual financial statements of the controlled company can no longer be adjusted due to insolvency and if a different result would have been reported in the final annual financial statements if the accounting principles under commercial law had been applied correctly.
The Supreme Tax Court decided that the contribution of all shares in an indirectly property-owning company by a corporation under Irish law to the plaintiff against consideration is subject to real estate transfer tax pursuant to Section 1 (3) Real Estate Transfer Tax Act. The exemption on intra-group restructures (conversions) under Section 6a Real Estate Transfer Tax Act was not available.
Following yet another preliminary ruling regarding the German regulations of consolidated tax groups for VAT purposes the European Court of Justice held that a VAT group’s internal transactions do not fall within the scope of value added tax and remain non-taxable.
In two current judgments the Supreme Tax Court has commented on the German VAT Group requirements following preliminary rulings which the court had referred to the ECJ in 2109 and 2020 and on which the ECJ provided answers in its judgments of December 2022. In one decision the Supreme Tax Court changed its case law on financial Integration. In the second case, the Supreme Tax Court saw the need for yet another preliminary ruling from the ECJ regarding the VAT situation of intra-group transactions.
The Supreme Tax Court has held that a sale of shareholdings within a group was not sufficiently good cause for breaking an unwanted German tax group before its expiry date.
The European Court of Justice held that a German resident company (limited partnership) has no establishment for VAT purposes in Romania under a service contract with a Romanian group company. The court also addressed the question of the place of performance under the circumstances in the case referred.
In two parallel decisions the Supreme Tax Court held that a group of natural persons who are not organized in the legal form of a partnership or another corporation is not considered as a legal entity under civil law and real estate transfer tax law and cannot therefore be a controlling company within the meaning of Section 6a Real Estate Transfer Tax Act which provides tax exemption for transfer or concentration in the hands of a single shareholder of at least 95% of the equity capital of a property-owning company.
In a most recent judgment, the Supreme Tax Court decided that the trade tax addback of a silent partner's profit share is subject to the free movement of capital which also applies to third countries (here: the USA). The application of the "grandfather“ clause of Art 64 TFEU (ex-Article 57 TEC) is generally not affected by statements made in a letter from a lower tax authority.
On 30 November 2017, the Federal Ministry of Finance published the final version of its circular on the application of the loss forfeiture rules according to Section 8c of the Corporation Tax Act (CTA), including comments on the Hidden Reserve Clause and the Group Clause. This circular replaces the circular on this subject from 4 July 2008.
