Germany: Losses of permanent establishments in other EU countries not deductible (Federal Tax Court decision)

A Federal Tax Court decision concerning losses of permanent establishments in other EU countries

Losses of permanent establishments in other EU countries not deductible

The German Federal Tax Court (BFH) held (I R 35/22) that domestic companies may not deduct losses of permanent establishments in other EU countries against profits generated in Germany if under the applicable income tax treaty there is no German right to tax the income of the permanent establishments.

The BFH further held that this also applies if the losses abroad cannot be utilized under any circumstances and are thus "definitive." The BFH referred to the Court of Justice of the European Union (CJEU) the issue of whether that holding violates EU law, and the CJEU confirmed that it did not.


A German-based bank opened a branch in the United Kingdom in 2004. After the branch consistently only generated losses, it was closed in 2007. Because the branch never made any profits, the bank could not use the losses for UK tax purposes.

The BFH held that the losses could not be used in Germany either because under the Germany-UK income tax treaty, UK permanent establishment income is not subject to German taxation. The BFH further held after referring the matter to the CJEU that this denial of loss deduction did not violate EU law even with regard to definitive losses.

Read a June 2023 report [PDF 993 KB] prepared by the KPMG member firm in Germany


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