The German Federal Ministry of Finance issues draft law for the implementation of the EU Directive to ensure a global minimum level of taxation for multinational groups of companies and large domestic groups in the Union The aim of the draft law is to implement key elements of the international agreements on Pillar 2 of […]
Countries: Germany
Germany vs A Corp. (S-Corporation), November 2022, Finanzgericht Cologne, Case No 2 K 750/19
It is disputed between the parties whether the A Corp. resident in the USA – a so-called S corporation – or its shareholders are entitled to full exemption and reimbursement of the capital gains tax with regard to a profit distribution by a domestic subsidiary of A Corp. (S-Corporation). A Corp. (S-Corporation) is a corporation […]
Germany vs “Import GmbH”, October 2022, FG München, Case No 14 K 588/20
The customs value declared by “Import GmbH” of the goods imported from related parties X, Y and Z was in dispute. In the course of a customs audit, the customs office (Hauptzollamt, HZA) found that Y had invoiced “Import GmbH” for subsequent debit amounts of EUR (…) for 2015, EUR (…) for 2016 and EUR […]
Germany vs X GmbH & Co. KG, October 2022, European Court of Justice, Case No C-431/21
A Regional Tax Court in Germany had requested a preliminary ruling from the European Court of Justice on two questions related to German transfer pricing documentation requirements. whether the freedom of establishment (Article 49 TFEU) or the freedom to provide services (Article 56 TFEU) is to be interpreted in such a way that it precludes […]
Germany vs “H-Customs GmbH”, May 2022, Bundesfinanzhof, Case No VII R 2/19
H-Customs GmbH – the applicant and appellant – is a subsidiary of H, Japan. In the period at issue, from 17 October 2009 to 30 September 2010, H-Customs GmbH imported more than 1,000 consignments of various goods from H, which it had cleared for free circulation under customs and tax law at the defendant HZA […]
German draft-legislation on application of the arm’s length principle to cross-border relocation of functions
On 5 July 2022, the Federal Ministry of Finance in Germany published draft legislation regarding application of the arm’s length principle to cross-border relocation of functions. According to the general provisions A function is a business activity that consists of a grouping of similar operational tasks performed by specific units or departments of an enterprise. […]
Germany vs “C GmbH”, June 2022, Finanzgericht Köln, Case No 10 K 1406/18
In 2014 a profit transfer agreement was effectively concluded between the plaintiff, C GmbH (controlled company), and its sole shareholder A. The profits to be transferred and interest to be paid for the disputed years 2009-2011 were subsequently booked to a “liabilities to shareholders†clearing account, but counterclaims or lump sum payments were not booked. […]
Germany vs Z Group, January 2022, Finanzgericht Cologne, Case No 2 V 827/21
Z-Group had been subject to a joint transfer pricing audit by the tax administrations of Belgium, France, Italy, Spain, Austria and Germany in order to examine the appropriateness of the franchise fee charged between the group companies. Z Group filed a complaint where it disputed the German tax administration’s entitlement to cooperate in a coordinated […]
Germany vs “HQ Lender GmbH”, January 2022, Bundesfinanzhof, Case No IR 15/21
“HQ Lender GmbH” is the sole shareholder and at the same time the controlling company of A GmbH. The latter held 99.98% of the shares in B N.V., a corporation with its seat in Belgium. The remaining shares in B N.V. were held by HQ Lender GmbH itself. A GmbH maintained a clearing account for […]
Germany vs “Wind-farm PE”, November 2021, Bundesfinanzhof, Case No I B 44/21
In 2011 a permanent establishment (PE) of a Danish company was established for income tax purposes in Germany in the form of an offshore wind farm. The PE had no employees of its own either in Germany or in Denmark. The technical and commercial management was carried out by two German service and management companies […]
Germany vs “Shipping Investor Cyprus”, November 2021, Bundesfinanzhof, Case No IR 27/19
“Shipping Investor Cyprus†was a limited liability company domiciled in Cyprus. In the financial years 2010 and 2011 it received interest income from convertible bonds subject to German withholding tax. “Shipping Investor Cyprus†had no substance itself, but an associated company, also domiciled in Cyprus, had both offices and employees. The dispute was whether “Shipping […]
German TP-Legislation updated as of June 2021
German legislation on transfer pricing has been updated to align the rules with the OECD Transfer Pricing Guidelines 2017. The new amendments are effective as of fiscal year 2022. The update includes revised content on Substance over form Risk analysis Best method rule Use of interquartile range Aggregation of transactions Determination of actual ownership vs […]
Germany vs “Lender GmbH”, June 2021, Bundesfinanzhof, Case No IR 4/17
At issue in this case was the choice of transfer pricing method for determining the arm’s length price of a intra-group loan. Lender GmbH is held by a Dutch holding company. The holding company is also the sole shareholder of Lender GmbH’s sister company, which is also domiciled in the Netherlands. The Dutch sister company […]
Germany vs “G-Corp GmbH”, June 2021, Bundesfinanzhof, Case No I R 32/17
A German corporation,”G Corp” held interests in domestic and foreign companies in the year in dispute (2005). G Corp granted loans to various subordinate companies – resident in France and the USA. These loans were mainly at fixed interest rates; instead of a fixed interest rate, an annual participation of 12.5% in the balance sheet […]
Germany vs Lender GmbH, May 2021, Bundesfinanzhof, Case No I R 62/17
Lender GmbH acquired all shares in T GmbH from T in 2012 (year in dispute) for a purchase price of … €. To finance the purchase price of the shares, Lender GmbH took out a loan from its sole shareholder, D GmbH, a loan in the amount of … €, which bore interest at 8% […]
Germany vs A… GmbH, March 2021, BUNDESVERFASSUNGSGERICHT, Case No 2 BvR 1161/19
A GmbH provided funding in the form of a clearing account to its Belgian subsidiary. The account was unsecured and carried an interest of 6% p.a. In 2005, A GmbH and the Belgian company agreed on a debt write-off which was deducted for tax purposes. The tax authorities issued an assessment where the write-off was […]
New German Administrative Ordinance on transfer pricing issues AO 2020, DOK 2020/1174240
In december 2020 the Federal Ministry of Finance in German issued a new administrative ordinance related to various transfer pricing issues. Among the issues are enhanced requirement to cooperate and submit additional documentation related to controlled transactions, but most notable may be the conditions under which estimated tax assessments can be issued. Below is an […]
Germany vs “Write-Down KG”, February 2020, Bundesfinanzhof, Case No I R 19/17
In 2010, “Write-Down KG” granted a loan to its Turkish subsidiary (“T”). The loan bore interest at 6% per annum but was unsecured. In 2011, Write-Down KG decided to liquidate T. Write-Down KG therefore wrote off its loan and interest receivable from T and claimed the write-off as a tax deduction. The German tax authorities […]
Germany vs “NO-MAP GmbH”, September 2019, Bundesfinanzhof, Case No IR 82/17
A request for mutual agreement and arbitration procedure between Spain and Germany was denied due to highly punishable violation of tax regulations committed by the taxpayer. The mutual agreement procedure according to the EU Arbitration Convention is of a mandatory nature and therefore leads to the elimination of double taxation if the requirements are met. […]
Germany vs “G-Lender GmbH”, February 2019, Bundesfinanzhof, Case No IR 81/17
G-Lender GmbH, owned 50% of Austrian company A GmbH. The remaining 50% of the shares in A GmbH were held by non related shareholders, who at the same time acted as managing directors of A GmbH. G-Lender GmbH granted A GmbH a total of five loans. These loans each carried an interest rate of 5.5% […]
Germany vs “Waiver KG”, February 2019, Bundesfinanzhof, Case No I R 51/17
Waiver KG had an outstanding (non-interest-bearing and unsecured) trade receivable of EUR 2,560,000 from a wholly-owned subsidiary in China related to deliveries made in FY 2004 and 2005. Waiver KG had first issued a partial waiver (EUR 560,000) on the receivable and then a complete waiver in December 2008, after a partial write-down had previously […]
Germany vs “C A GmbH”, February 2019, Bundesfinanzhof, Case No I R 73/16
C A GmbH managed an unsecured clearing account for a Belgian subsidiary. After financial difficulties in the Belgian subsidiary, C A GmbH waived their claim from the clearing account and booked this in their balance sheet as a loss. However, the tax office disallowed the loss according to § 1 Abs. 1 AStG. Up until now, the […]
Germany vs Cyprus Ltd, June 2018, BFH judgment Case No IR 94/15
The Bundesfinanzhof confirmed prior case law according to which the provisions on hidden deposits and hidden profit distributions must be observed in the context of the additional taxation. On the question of economic activity of the controlled foreign company, the Bundesfinanzhof refers to the ruling of the European Court of Justice concerning Cadbury-Schweppes from 2006. […]
Germany vs Cash Pool GmbH, January 2018, BFH Case No. I R 74-15
The German court concludes that a Cash Pool agreement must be clear and unambiguous both in substance and amount. If only a minimum and maximum interest rate has been agreed the arm’s length standard is not met. Click here for English translation Click here for other translation
Germany vs “A Investment GmbH”, June 2017, Tax Court , Case no 10 K 771/16
A Investment GmbH, acquired all shares of B in May 2012. To finance the acquisition, A Investment GmbH took up a bank loan (term: 5 years; interest rate: 4.78%; secured; senior), a vendor loan (term: 6 years; interest rate: 10%; unsecured; subordinated) and a shareholder loan (term: 9 to 10 years; interest rate: 8%; unsecured; […]
Germany vs “X Sub GmbH”, December 2016, Münster Fiscal Court, Case No 13 K 4037/13 K,F
X Sub GmbH is a German subsidiary of a multinational group. The parent company Y Par B.V. and the financial hub of the group Z Fin B.V. – a sister company to the German subsidiary – are both located in the Netherlands. In its function as a financial hub, Z Fin B.V granted several loans […]
Germany vs “Turbine Owner Gmbh”, September 2016, Supreme Tax Court IV R 1 14
Tax depreciation for wind turbines presupposes economic ownership of the asset. A change in economic ownership requires that any risks are transferred to the purchaser/customer. The German Supreme Tax Court held that economic ownership of an asset is not transferred at the time it generates income but rather when the risk of accidental destruction and accidental […]
Germany vs. License GmbH, January 2016, Supreme Tax Court, Case No I R 22 14
The Supreme Tax Court has held that a parent company cannot be deemed to have earned income from allowing its Polish subsidiary to register locally in the group name. A German business was active in a field of patented technology associated with its own firm name, “Bâ€. It allowed its Polish subsidiaries to register in […]
Germany vs. “Loss and Limitation Gmbh”, November 2015, Supreme Tax Court judgment I R 57/13
There are a number of exceptions to the German interest limitation rule essentially limiting the annual interest deduction to 30% of EBITDA as shown in the accounts. One of these is the equity ratio rule exempting a subsidiary company from the interest limitation provided its equity ratio (ratio of shareholder’s equity to the balance sheet […]
Germany vs. “Capital reduction Gmbh”, October 2014, Supreme Tax Court judgment I R 31/13
A German company resolved a share capital reduction of €16 m in preparation for a capital repayment to avoid an IFRS consolidation requirement for its sole shareholder, a public utility. It took the reduction to capital reserve, waited as required by the German Company Act for one year after a public announcement to it’s creditors, […]
Germany – Constitutionality of interest limitation provisions, October 2015, Supreme Tax Court decision I R 20/15
The Supreme Tax Court has requested the Constitutional Court to rule on the conformity of the interest limitation with the constitutional requirement to tax like circumstances alike. The interest limitation disallows net interest expense in excess of 30% of EBITDA. However, the rule does not apply to companies with a total net annual interest cost […]
Germany vs Capital GmbH, June 2015, Bundesfinanzhof, Case No I R 29/14
The German subsidiary of a Canadian group lent significant sums to its under-capitalised UK subsidiary. The debt proved irrecoverable and was written off in 2002 when the UK company ceased trading. At the time, such write-offs were permitted subject to adherence to the principle of dealing at arm’s length. In its determination of profits on […]
Germany vs C-GmbH, December 2014, Bundesfinanzhof, Case No I R 23/13
C-GmbH was the sole shareholder of I-GmbH. In 2000, I-GmbH, together with another company, set up a US company for the development of the US market, H-Inc., in which the I-GmbH held 60 per cent of the shares. H-Inc. received equity from the two shareholders and also received a bank loan of approx. $ 1.5 […]
Germany vs License GmbH, February 2014, Local Tax Court, Case No 4 K 1053/11 E
The Local Tax Court found that the arm’s-length principle requires a licence to be paid for the use of group name where the name/trademark has value in itself. The decision of the Local Court was later overturned by the Supreme Tax Court ruling in Case no. I R 22 14 Click here for English […]
Germany vs US resident German taxpayer, October 2013, Supreme Tax Court, Case No IX R 25/12
The Supreme Tax Court has held that the costs incurred by a taxpayer in connection with a tax treaty mutual agreement proceeding are not costs of earning the relevant income, but has left open a possible deduction as “unusual expensesâ€. A US resident realised a gain on the sale of a share in a GmbH. […]
Germany vs “Asset management Gmbh”, April 2013, Supreme Administrative Court, Case No I R 45/11
Asset management Gmbh was a subsidiary of a Luxembourg investment fund management company. The German company paid substantial fees to a Luxembourg service company. Both companies in Luxembourg were wholly-owned by a Luxembourg holding company. Asset management Gmbh was obliged to follow the policies of the fund. These could only be revised by a two-thirds […]
Germany vs “Spedition Gmbh”, October 2012, Federal Tax Court 11.10.2012, I R 75/11
Spedition Gmbh entered a written agreement – at year-end – to pay management fees to its Dutch parent for services received during the year. The legal question was the relationship between arm’s-length principle as included in double tax treaties and the norms for income assessments in German tax law. The assessment of the tax office […]
Germany vs “TP-Doc GmbH”, June 2011, Bundesfinanzhof, Case No X B 37/11
The Bundesfinanzhof confirmed the statutory authority of the tax authorities to issue penalties where a taxpayer have not fulfilled transfer pricing documentation requirement. Click here for English translation Click here for other translation
German Guidance on Business Restructuring and Valuation issued in October 2010
In 2008 German legislation on business restructurings was updated to align with the new chapter XI in the OECD Transfer Pricing Guidelines. § 1 para. 3 AStG and the “Regulation on the application of the arm’s length principle according to §1 para. 1 AStG in cases of cross-border relocation of functions” of 12.8.2008 (Function Relocation […]
German Guidance on Business Restructuring and Valuation issued in October 2010
In 2008 German legislation on business restructurings was updated to align with the new chapter XI in the OECD Transfer Pricing Guidelines. § 1 para. 3 AStG and the “Regulation on the application of the arm’s length principle according to §1 para. 1 AStG in cases of cross-border relocation of functions” of 12.8.2008 (Function Relocation […]
Germany vs “Trademark GmbH”, November 2006, FG München, Case No 6 K 578/06
A German company on behalf of its Austrian Parent X-GmbH distributed products manufactured by the Austrian X-KG. By a contract of 28 May 1992, X-GmbH granted the German company the right to use the trade mark ‘X’ registered in Austria. According to the agreement the German company paid a license fee for the right to […]
Germany vs “Loss Distributor GmbH”, April 2005, Bundesfinanzhof, I R 22/04
The Bundesfinanzhof confirmed that losses incurred by a simpel distribution entity over a longer period of time trigger a rebuttable presumption in Germany that transfer prices have not been at arm’s length. A German company, Loss Distributor GmbH, imported goods from their Swiss sister company S-AG and had made continious losses over a period of time. The tax […]
Germany vs “Clothing Distribution Gmbh”, October 2001, BFH Urt. 17.10.2001, IR 103/00
A German GmbH distributed clothing for its Italian parent. The German tax authorities issued a tax assessment based on hidden profit distribution from the German GmbH in favor of its Italien parent as a result of excessive purchase prices, which led to high and continuous losses in Germany. The tax authorities determined the arm’s length […]
Germany vs “Group Name GmbH”, August 2000, I R 12/99
A German group company’s payment for use of the group name was not found to be deductible under German transfer pricing regulations. Guidance on payments for use of the group name has been provided in the Transfer Pricing Guidelines 6.81 – 6.85 and 7.12. As a general rule, no payment should be recognised for transfer […]
Germany vs GmbH, February 1993, Bundesfinanzhof, Case No IR 3/92
The decision is about a German distribution company of international groups, which is in a continual overall loss position. This case established an important principle that: ‘… an orderly and diligent manager will, for the corporation managed by him, introduce to the market and distribute a new product only if he can expect, based on […]
Germany vs “B KG”, January 1981, Bundesfinanzhof, Case No IR 153/77
In 1964, B KG had waived claims totalling … against B S.A. in France, in which it held an 88% interest. In the course of an audit of B KG’s profits for 1964, the tax authorities did not regard the waiver as a commercial transaction. Instead, they found that the amount waived was a contribution […]
Germany vs “Sales KG”, March 1980, Bundesfinanzhof, Case No IR 186/76
The sales company … – (GmbH) was the managing general partner of the plaintiff and defendant, a limited partnership – “Sales KG” – in the years in dispute. The GmbH had a 10/11 share in the capital of “Sales KG”. The limited partner was the Dutchman G. Shareholders of the GmbH with a share of […]
Germany vs Corp, January 1973, Bundesfinanzhof, Case No BFH, 10.01.1973 – I R 119/70
A hidden distribution of profit presupposes that a corporation grants its shareholder a pecuniary advantage outside the distribution of profits under company law which it would not have granted to a non-shareholder — under otherwise identical circumstances — if the diligence of a prudent and conscientious manager had been applied. It should be noted that […]