Z is the head of a globally operating group. At group level it was decided to discontinue production at subsidiary “X-BR GMBH” at location A and in future to carry out production as far as possible at location B by group company Y. The production facilities were sold by “X-BR GMBH” to sister companies. The closure costs incurred in the context of the cessation of production were borne by Y. No further payments were made as compensation for the discontinuation of production in A.
The tax authorities found that “X-BR GMBH” had transferred functions and thus value to group company Y and issued an assessment of taxable profits.
Judgment of the Court of Appeal
The Court decided in favour of “X-BR GMBH” and set aside the assessment. According to the court there is no transfer of functions if neither economic assets nor other benefits or business opportunities are transferred nor is there a causal link between the transfer of benefits in the broadest sense and the transfer of the ability to perform a function.”
Excerpt
“…As a rule, the business opportunity is therefore an intangible asset, such as a customer or client base, a supply right or a specific export market, which can be transferred in return for payment. The advantage that accrues or could accrue to the opportunity can be a one-time advantage (e.g. entry into a contract), but it can also be an ongoing advantage that is reflected in several financial years. However, the advantage must always be so specific that it can be independently assessed by the parties involved. A certain marketability of the opportunity will be required as an essential criterion. If there is no marketability, it is regularly an “opportunity” that cannot be independently exploited.
However, a business opportunity does not necessarily have to be a legally secured legal position (BFH judgment of 12 June 1997, I R 14/96). However, the business opportunity must be at least sufficiently concrete that it is amenable to valuation, especially since otherwise it would not be possible to determine an appropriate consideration for it (cf. Ditz DStR 2005, 1916?f.; Wassermeyer/Andresen/Ditz Betriebsstätten-Handbuch/Ditz Rz. 4.55; also Wassermeyer GmbHR 1993, 332). Whether this means that a business opportunity already qualifies as an intangible asset has largely been left open by the BFH (BFH judgment of 13 November 1996, I R 149/94, DStR 1997, 325 [BFH 27.03.1996 – I R 89/95]; BFH judgment of 6 December 1995, I R 40/95, BFHE 180, 38?f.).
b) In the present case, there is no concrete business opportunity within the meaning of § 8 (3) KStG. The defendant’s assumption of a vGA is based on the consideration that the discontinuation of a profitable production by an external third party would not have occurred without compensation and that consequently a prevented increase in assets would have resulted from this. However, the defendant was not able to show what the concrete transfer of a chance of profit in the form of an asset position by X was supposed to have consisted of.
Rather, in the opinion of the Senate, the transfer of an asset by X was lacking. The production was essentially based on the allocation of production quantities for group-affiliated sales companies by the group’s top management. There were no contractual commitments by the parent company to X that would have secured it a valuable legal position in the form of a supply right or a merely specific order allocation within the group. Own contracts under the law of obligations in the form of supply contracts with third parties existed only to a small extent at the time of the closure. Thus, in the years before the year in dispute, X’s sales outside the group in this area amounted to only between 1.46% and 3.43% of total sales. Accordingly, the profits resulted predominantly from the production and supply of the group’s own distribution companies on the basis of orders which were allocated to X by the parent company without any legal claim to the retention of the order volume. Within the framework of such a constellation, it would have been possible for Y without further ado to reduce the group-internal order allocation to X without compensation due to the reduced order situation in the group. However, if the production volume of X was already based on the order allocation by the parent company, which was “at the discretion of the group’s top management”, X had no independent business opportunity which it could leave to the parent company. In particular, it must be taken into account that X had no legally established position vis-à-vis the parent company with regard to a certain volume of orders. Valuable market positions in the form of contractual relationships with third parties and concluded supply contracts were essentially due to the parent company and not to X. In this respect, the existence of a business opportunity is ruled out. In this respect, the existence of a business opportunity for X, which it left to the parent company free of charge, is ruled out.
Even insofar as the defendant believes that X is to be regarded as an independent company and that the group companies are to be treated as third parties in the context of the arm’s length principle, it was primarily Y that had access to the customer relationships with its subsidiaries. This is particularly supported by the fact that the Y allocated the order volume to the X and that the X had not concluded its own orders through contractual agreements with group companies. The Y was therefore itself in a position to control the customer relationships. The transfer of a business opportunity is therefore ruled out.
Likewise, there is no granting of a business opportunity by transferring the customer relationships to external customers or a customer base for customers outside the group. Business relations with third parties outside the group and thus a customer base in the sense of external customers outside the group did not exist for X – as explained – to any significant extent. There is no contractual agreement on the transfer of the customer base or the business relations with third parties outside the group. Moreover, the defendant was not able to concretely demonstrate and prove that business relations with third parties outside the group had actually been transferred from X to the parent company. Thus, after the year in dispute, not a single contract between a former client of X from outside the group and the group parent or other group companies is known. Rather, X’s former external clients switched to other external suppliers after production was discontinued. According to all of the above, the Senate cannot establish that an increase in assets was prevented on the basis of company law.
A correction of income due to a transfer of functions pursuant to § 1 para. 3 sentence 9 AStG is also ruled out.”
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