Tax & Legal

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.

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.

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.

An ECJ advocate general has suggested the court hold that the Dutch provisions on tax groups are in conflict with the freedom of establishment insofar as they do not allow domestic sub-subsidiaries of a foreign subsidiary or domestic subsidiaries of a foreign parent to join or form a Dutch tax 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).

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.

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 ECJ has held that provisions allowing full expense deduction within tax groups must be applied to otherwise eligible foreign subsidiaries.

Pillar 2 Notification Requirement in Germany – Head of the Minimum Tax Group

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.

An ECJ advocate general has suggested the court hold that the 5% effectively connected expense add-back for foreign dividends infringes a company’s freedom of establishment if an otherwise comparable domestic company could avoid the add-back by joining a tax group.

The ECJ has held that the Dutch legislation allowing members of a tax group to consolidate their results must include local sub-subsidiaries of non-resident intermediate parents as well as associated companies held by a common parent in another member state.

Issue 2 of our Newsletter for 2019, including news about the Ministry of Finance draft discussion document for the promotion of R&D, a Supreme Tax Court decision on non-deductible deemed business expenses in relation to merger profits within a tax group, and an ECJ decision about passive income attribution from controlled companies resident in third countries

See the Newsalert from our EU Direct Tax Group on the European Commission's adoption of a tax package for a fair and simple taxation.

See the Newsalert from our EU Direct Tax Group on the decision of the General Court to annul the European Commision's decision in Apple.

UPDATE: In its session on 25 June 2021, the Bundesrat gave its approval to the Act to Modernise Corporate Income Tax Law. The Bundesrat thus followed the recommendation of the Finance Committee. The law is should enter into force on 1 January 2022.

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.

In this issue: Official Pronouncements, Supreme Tax Court Cases, From Europe and From PwC.