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
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.
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The Cyprus Tax Department recently issued Forms T.D 38, T.D 38Qa and T.D 38Qb applicable to individuals being Cyprus tax residents but non-Cyprus domiciled.
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