Germany vs GmbH, February 1993, Bundesfinanzhof, Case No IR 3/92

Posted on | By Courts of Germany
Category: General Anti-Avoidance Rules (GAAR), Losses that continue indefinitely | Tag: , , , ,
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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 a prudent and pre-prepared economic forecast, a reasonable overall profit within a foreseeable period of time with due consideration to the predictable market development’.

This decision covered the market introduction of a new product by an already established company and stated that typically a market introduction phase, losses should not be accepted for longer than three years.

A later Bundesfinanzhof decision from 15 May 2002 stated that a start-up loss phase can be substantially longer than 3 years based on facts and circumstances.

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Germany vs GmbH Feb 1993

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