Today, amendments to the rules on German Group Taxation have been published in the German Federal Gazette. They mainly focus on relaxing rules on profit transfers, but at the same time increase the red tape with respect to the wording of the profit-and-loss-pooling agreement necessary to conclude a tax group.

As already agreed between both houses of parliament in late 2012 formal requirements will be tightened concerning the wording of profit-and-loss-pooling agreements with a GmbH. Even to date, such agreements were required to reference the laws on loss assumption pursuant to Sec. 302 of the German Stock Corporation Act.

In future, such reference will have to be made dynamically, so as to ensure that at all times, the current version of that provision is referenced. Here, even old profit-and-loss-pooling agreements will need to be amended. The period, by which amendments need to be made, will end on 31 December 2014. Therefore, a swift due-diligence exercise is recommended, in order for amendments to be made in a timely manner, where necessary.

At the same time, the dual consolidated loss rule has been re-worded in a broader manner. As outlined in our newsletter on the draft legislation, it cannot be excluded that the wording is read as disallowing losses of a tax group member company in certain situations, where foreign countries include non-territorial income and losses in their national taxation.

This does, inter alia, concern corporate groups with US parents. Where, for example, under US law a check-the-box election has been made either for the loss-making company or for the tax group parent, one might read the law as saying that such losses, as being considered in the US parent's US tax returns, can no longer be considered in Germany. We understand that this clearly was not intended when proposing the amendment, but the wording can be construed to cover just that.

This amendment is supposed to take retro-active effect for all open years. Whether this is permissive, remains questionable. Therefore, German tax groups particularly with US ultimate parents should be reviewed carefully.

A helpful amendment allows fiscal unities for tax purposes, even if the profit transferred was not computed correctly in case of audited financial statements and correction with the next possible annual financial statements. Also, it is clarified that EU companies whose place of management is in Germany, can be part of a German tax group as controlled companies.

Furthermore, the loss carry-back allowance has been increased from EUR 511,500 to EUR 1,000,000.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.