The failure of a consolidated tax group for income tax purposes can lead to considerable additional tax payments if the offsetting of losses in the consolidated tax group no longer applies. This is particularly critical within the first five years of the term of the profit and loss transfer agreement, as the offsetting of losses can then fail retroactively for all years. This fear of a tax audit has now been significantly reduced by two judgements of the Federal Fiscal Court (BFH) from 10 May 2017 (case no. I R 51/15 and I R 19/15).
On the one hand, the issue was that the allocation of income from the controlled company to the controlling company at the end of the financial year is decisive for the actual implementation of the profit transfer agreement required for tax purposes. From this, the court deduces that it is also important for the calculation of the five-year Minimum term of the profit and loss transfer agreement is possible, these fictitious withdrawalas is usually the case with a conversion. This is new. In particular, if the participation in the controlled company (financial integration) exists, it is not necessary for the five-year minimum term of the profit transfer agreement to coincide with the duration of the financial integration and the tax group period. This facilitates conversions of existing tax groups.
Another clarification by the BFH is even more significant. Apart from the five-year minimum term of the profit and loss transfer agreement, there is no temporal moment in the fiscal unity spanning several financial years. In particular, it is not necessary for the financial integration to also exist continuously for five years. If this does not exist continuously in one financial year (e.g. in the case of a company acquisition), a tax group only fails in this one year. There is only a Company break (interrupted fiscal unity, partial denial), which also has negative tax consequences, but does not cover all years of the five-year period. The prerequisite for this is that the profit transfer agreement is observed and actually implemented as agreed under civil law. For details, please refer to the judgement notes of the Author (GmbH-Rundschau 2017, issue 22, p. 1222 and 1226).
This means that some circumstances that were previously regarded as harmful are no longer so frightening for companies. Nevertheless, the organisation of a tax group and the review of existing tax group structures remain a challenging task for their advisors, who must be familiar with both group law and tax law issues.
Dr Wolfgang Walter is a lawyer, tax consultant and specialist lawyer for tax law at TAXGATE, a tax law firm specialising in transactions, investments and tax compliance, and comments on the tax group regulations in the KStG commentary published by Stollfuß-Verlag.
