PwC

Tax & Legal

Tax & Legal

Tax Consolidation Groups (“Organschaft”) for income tax purposes: Compensation payments to minority shareholders; failure to amend to “old agreements” of a GmbH following Section 302 (4) Stock Corporation Act.


According to a decision of the Supreme Tax Court published on 9 November 2017 a profit pooling agreement will not be recognised for tax purposes where the compensation agreement with the external shareholder contains both the right to a variable compensation payment calculated on the basis of the profits of the subsidiary/controlled company/”Organgesellschaft” (“subsidiary”) and a fixed amount. This also applies to subsidiaries in the form of a GmbH (i.e. limited companies as well as to public limited/stock companies (AGs)). The Supreme Tax Court also ruled that the requirement of Section 17 2nd Sentence No. 2 Corporation Tax Act (old version), according to which the assumption of losses was to be expressly agreed in the profit pooling agreement of a GmbH in accordance with Section 302 (4) Stock Corporation Act, was not only to be complied with at the time of conclusion of the agreement but also in each of the following years. It followed that those parts of the Section 302 regulation which had not entered into force at the time of the conclusion of the contract were also to be taken into consideration. Thus where a loss assumption agreement is not inserted into an “old” profit pooling agreement, (i.e. one concluded prior to the entry into force of Section 302 (4) Stock Corporation Act), in order to meet the requirements of the amended section and where this omission was not subsequently redressed under the amnesty rule, the Organschaft was no longer to be recognised for income tax purposes. Continue reading