Wednesday night, the joint committee of German parliament has
adopted changes to its group taxation legislation, which mainly
focus on relaxing rules on profit transfers, while at the same time
increasing the red tape with respect to the wording of the
profit-and-loss-pooling agreement necessary to conclude a tax
group. It is expected that the law will be adopted by both houses
early next year.
The most helpful amendment allows fiscal unities to be accepted
for tax purposes, even if the profit transferred was not computed
correctly, where such profit was resolved upon with the annual
accounts. This will require that the fault is not based on a lack
of diligence and that it is corrected with the next possible annual
financial statements. Diligence requirements are usually met, if
the respective annual accounts have received an unqualified
As far as the wording of profit-and-loss-pooling agreements with a
GmbH is concerned, formal requirements have been tightened. 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 then 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, we
recommend a swift due-diligence exercise at the beginning of 2013,
in order for amendments to be made in a timely manner, where
The wording now clarifies that, as already accepted by the tax
authorities, EU companies whose place of management is in Germany,
can be part of a German tax group as controlled companies in such
Also, the loss carry-back allowance has been increased from EUR
511,500 to EUR 1,000,000. This will allow companies to obtain a
higher cash tax refund for their last profitable year, once they
run into a period of losses.
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.
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.
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