The German fiscal unity for income tax purposes as a special form of group taxation for the tax consolidation of profits and losses of different companies is in constant danger of being caught in the pincers of EU and DTA law, particularly due to the profit transfer agreement required for this. All too quickly, a violation of the freedom of establishment under EU law or a ban on DTA discrimination arises. A strategic precaution by the tax authorities to safeguard the exclusion of a cross-border tax group in a slightly different context has so far been completely overlooked in the specialist literature on tax groups. What is at stake?
Following the ECJ judgement of 12 June 2014 (Case C-40/13 "SCA Group Holding BV"), according to which group taxation in the Netherlands between the subsidiaries of a joint EU/EEA parent company is required due to the freedom of establishment, the Netherlands, France and Spain very quickly permitted national group taxation for comparable constellations (Handelsblatt tax board from 23/02/2015). The German tax authorities are ducking away. In my legal opinion, the comparable solution of a horizontal tax group with a purely national tax consolidation of profits and losses would nevertheless be possible in Germany through a teleological extension of the criterion of indirect financial integration. A profit transfer agreement could also be concluded between sister companies without any problems under civil law (Handelsblatt tax board from 14/07/2014). Statements in favour in the specialist literature (including two standard commentaries) are becoming more frequent, although this is still a minority opinion. Implementation would require creative courage and patience on the part of companies, as a legal dispute is likely to go all the way to the ECJ.
The realisation from the master's thesis by Philipp Macke at the DHBW Stuttgart (Ertagsteuerliche Organschaft im grenzüberschreitenden Unternehmensverbund, Hamburg 2016) that the tax authorities took precautions following the above-mentioned judgement of the BFH on consolidated tax groups for trade tax purposes by including clauses in DTA protocols that allow income taxation on a consolidated basis ("Organschaft") to be applied to persons resident in this contracting state. The tax authorities took precautions after the above-mentioned BFH judgement on consolidated tax groups by including clauses in the protocols to DTAs that allow income taxation on a consolidated basis ("consolidated tax group") to be restricted to persons resident in this contracting state, which in effect also sanctions the exclusion of a consolidated tax group between sister companies without a domestic permanent establishment of a foreign controlling company - as is the case de lege lata in Germany - without violating the prohibition of discrimination. Such protocol regulations already exist in the DTAs of Luxembourg, Liechtenstein, the Netherlands, the USA and Norway.
Even if the reason for the regulations was the loss of the German right of taxation for trade tax, they should also be applicable for corporation tax and should also ensure the exclusion of a horizontal tax group without a domestic permanent establishment of the foreign parent company in relation to the states mentioned, although the domestic tax base would not be affected in the case of a purely national cross-consolidation.
This shows how concerned the BMF is that the existing income tax group system is not compatible with EU law. However, the protocol regulations can also be understood to mean that they indirectly confirm the possibility of a horizontal tax group for German subsidiaries from those EU/EEA states that are not (yet?) covered by a DTA protocol regulation.
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.
