Germany: 217. AMID Raises Cross-Border Loss Utilisation Issues

Last Updated: 14 May 2001
KPMG Germany Webpage
Click on the above link to visit the KPMG Germany webpage on the Mondaq website

See disclaimer and notice of copyright at the end of this article

  1. Issues Raised By AMID

The decision recently handed down by the European Court of Justice (ECJ) in the matter of AMID NV suggests that central aspects of German tax law on cross-border loss utilisation are in violation of the freedom of establishment clause of the EC Treaty (Article 43; formerly, Article 52). As pointed out by Gert Saß (Der Betrieb 2001, 508), the judgement raises two questions:

  • Does European Union law mandate the deductibility of losses arising in a foreign permanent establishment even where corresponding profits would be exempt from taxation in the company's home state?
  • Is European Union law violated by refusing to permit the inclusion of foreign subsidiaries in groups whose profits and losses are consolidated for tax purposes?
  1. Facts Of The Case

Amid NV was a Belgian company with a permanent establishment in Luxembourg. In 1981, AMID suffered a loss from its Belgian operations, while its Luxembourg permanent establishment earned a profit of slightly greater magnitude. This profit was tax exempt in Belgium under its tax treaty with Luxembourg. In the following year, AMID generated a profit in Belgium as well. AMID sought to deduct its 1981 Belgian losses from its 1982 Belgian profits.

The deduction was denied because of a clause in the Belgian income tax code permitting a company's domestic losses to be carried forward only to the extent they exceeded its foreign profits. The same section permitted domestic profits to be reduced by foreign losses even where corresponding gains were exempt under a tax treaty. Under these provisions, AMID's 1981 Belgian loss was offset by its 1981 Luxembourg profit and could not be carried forward to 1982.

AMID contested its tax assessment in the Belgian courts arguing that the relevant provisions of Belgian tax law were in violation of the freedom of establishment clause of the EC Treaty. The Ghent Court of Appeal referred the question to the European Court of Justice.

  1. Belgium's Position And ECJ's Holding

Belgium defended its system on the grounds that it was, on the whole, balanced. While companies that sustained occasional domestic losses while consistently earning foreign profits were at a disadvantage, companies could not predict their future earnings so accurately as to let this deter them from setting up foreign permanent establishments. The ability to deduct foreign losses both in Belgium and, in later years, in the jurisdiction where the permanent establishment was located put some companies in a better overall tax position than if they had operated only inside Belgium. Furthermore, the fact that Belgium could not tax foreign permanent establishment profits meant that some differences in the treatment of Belgian residents with foreign permanent establishments were justified.

The European Court of Justice rejected these arguments, stating that the benefit which the system conferred on some companies did not justify the burden it imposed on others. The court could discern no "objective difference," sufficient to justify different loss treatment, between a Belgian company operating solely in Belgium and a Belgian company with a Luxembourg permanent establishment. The fact that permanent establishment profits were tax exempt in Belgium was not a sufficient difference in the court's eyes.

  1. Relevance For German Tax Law

German law currently does not allow its taxpayers to deduct foreign business losses where corresponding gains would be exempt under a tax treaty. Until 1999, the German tax code allowed such deductions on an elective basis subject to later recapture. German tax law likewise does not permit the inclusion of foreign corporations in tax consolidated groups.

AMID suggests that tax treaty limitations on Germany's ability to tax the profits of foreign permanent establishments are not sufficient reason for disallowing the deduction of business losses sustained in other EU countries while allowing the deduction of business losses incurred domestically. Similarly, AMID suggests that it violates the freedom of establishment clause of the EC Treaty to permit consolidation of the profits and losses of domestic subsidiaries for tax purposes, but to deny this benefit to subsidiaries located in other EU countries.

  1. Relationship To Singer Decision

We reported in article no. 87 on the European Court of Justice's judgement of 15 May 1997, in which it held that an EU member state violates EU law by requiring the domestic branch establishment of an entity with its legal seat in another EU country to keep its books in the member state in order to qualify for a net operating loss carryforward or carryback.

The Singer decision struck down formal limitations on loss utilisation, just as AMID strikes down substantive limitations on loss utilisation.

Germany has yet to adjust its tax laws to take account of Singer, which casts doubt on the validity of § 50 (1) sentence 3 EStG (denying a loss carryforward to non-residents if books and records are not maintained in Germany) and § 146 (2) sentence 1 AO (requiring books and records to be kept and held for safekeeping in Germany) as regards the German permanent establishments and subsidiaries of EU companies.

Münch (DB 2000, 2140) concedes that § 146 (2) AO is probably inconsistent with EU law and argues that, where the German permanent establishments of EU enterprises apply for permission under § 148 AO to keep books and records in another EU member state, such permission must be granted as long as the tax authorities' access to the foreign books is comparable to that which bookkeeping in Germany would permit. He states that tax authority access to the taxpayer's electronic systems will often be necessary to ensure this. "Electronic audit" provisions were included in Germany's 2000 tax reform bill and take effect in 2002 (see article no. 213).

Disclaimer and notice of copyright

This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. KPMG Germany in particular insists that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While KPMG Germany's articles are carefully reviewed, it can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised against KPMG Germany on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Germany (KPMG Deutsche Treuhand-Gesellschaft AG). No use of or quotation from the article is permitted without full attribution to KPMG Germany. Distribution to third persons is prohibited without the express written consent of KPMG Germany in advance.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions