Germany vs A… GmbH, March 2021, BUNDESVERFASSUNGSGERICHT, Case No 2 BvR 1161/19

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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 denied as a tax deductible expense. According to the tax authorities, independent third parties would have agreed on some kind of security. The lack thereof was a violation of the arm’s length principle.

A GmbH brought the assessment to court.

The Federal Fiscal Court (I R 73/16) found the assessment of the tax authorities to be lawful.

This decision was then appealed to the Constitutional Court by  A GmbH, alleging violation of the general principle of equality as well as a violation of its fundamental procedural right to the lawful judge.

Decision of the Constitutional Court

The Federal Constitutional Court decided in favour of A GmbH and found the constitutional complaint well-founded.

…the decision of the Federal Fiscal Court violates the complainant’s fundamental procedural right to the lawful judge (Article 101.1 sentence 2 of the Basic Law) due to the way it chooses to handle its obligation to make a reference pursuant to Article 267.3 TFEU.

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BFH 4 march 2021

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