Germany: Summary of recent federal tax court decisions
Decisions of the German Federal Tax Court (BFH)
Decisions of the German Federal Tax Court (BFH)
The KPMG member firm in Germany prepared a report that includes summaries of the following decisions of the German Federal Tax Court (BFH).
Only business expenses treated as incurred in tax year must be deducted in determining creditable foreign withholding tax
The court held (file ref. I R 14/19, 17 August 2022) that only business expenses treated as incurred in the tax year must be deducted when determining the amount of creditable foreign withholding taxes for such year. Business expenses that relate to ongoing development work not yet completed have no economic nexus with the current year’s income and thus need not be deducted.
Real estate transfer tax as a result of upstream merger not deductible
The court held (file ref. I R 24/20, 23 November 2022) that real estate transfer tax arising based on an indirect unification of shares due to a merger could not be deducted as a business expense, and instead constituted "costs for the transfer of assets" under Section 12 (2) sentence 1 of the German Reorganization Tax Act (UmwStG).
Non-performance of profit transfer agreement (PTA)
A prerequisite for forming a tax group (Organschaft) for income tax purposes is the conclusion of a PTA, which must be performed for at least five years (§ 14 (1) sent. 1 no. 3 sent. 1 of the German Corporate Tax Act (KStG)).
The court held (file ref. I R 37/19) that a PTA was not actually performed when the receivables and liabilities in the financial statements of the controlled and controlling companies did not reflect the absorption by the controlling company of the controlled company’s loss.
The court also held (file ref. I R 29/19) that a PTA was not actually performed when the financial statements of the controlled company could no longer be adjusted to reflect the controlled company’s profit transfer obligation as a result of the insolvency of the controlled company.
Read a February 2023 report [PDF 370 KB] prepared by the KPMG member firm in Germany
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