The Supreme Tax Court decided that a commercial partnership holding a share in a corporation as its sole activity in order to generate dividend income which is partially tax-exempt in accordance with Section 3 No. 40 Income Tax Act can deduct its ongoing administrative and consolidated group costs only in part because they are economically related to the partially tax-exempt income as defined in Section 3c (2) Sentence 1 Income Tax Act.
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 Supreme Tax Court has held that there is ultimately no trade tax disallowance of expenses directly connected with tax-free dividend income earned through an Organschaft subsidiary.
