Germany vs “G-Corp GmbH”, June 2021, Bundesfinanzhof, Case No I R 32/17

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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 profit of the subordinate company, limited to a maximum amount of 25% of the loan volume, was agreed as consideration for one loan. No collateral was provided. In the year in dispute, G Corp wrote off these loans against taxable profits.

G Corp also transferred assets at book value to a Maltese subsidiary company, of which it was the sole shareholder, and contributed the shares in this company, pursuant to section 23(4) of the Reorganisation Tax Act applicable in the year in dispute, also at book value, to another Malta-based company in the context of a capital increase against the granting of company rights.

Finally, in the year in dispute, G Corp and its controlled companies earned interest income from loan claims against various foreign subordinated companies totalling … €.

The tax authorities issued an assessment where the taxable income related to a partial value write-downs on unsecured loan receivables issued within the group and a book value transfer of assets to foreign subsidiaries had been adjusted.

In 2017 the regional tax court issued its decision concluding that the adjustment was not possible under the relevant German arm’s length provision.

This decision was then appealed to the Federal tax court by both parties.

Judgment of the Court (Bundesfinanzhof)

The Federal tax court found the appeal well-founded and referred the case back to the regional fiscal court.

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Bundesfinanzhof IR 3-17

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