• Service: Tax, Deal Advisory, Mergers & Acquisitions Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 7/3/2014

Germany - Courts decide corporate income tax, trade tax issues 

July 3:  Under German tax law, the income of a corporation is generally subject to corporate income tax and trade tax, with the calculation of trade tax being linked to the determination of income for purposes of trade tax. However, for purposes of trade tax, corporate income is modified and adjusted by certain add-backs and deductions.

Courts in Germany have issued judgments in cases concerning:

  • The holding period under the trade tax exemption rules—The federal tax court (BFH) held that the period for which a share has been held cannot be credited in the case of a share-for-share transfer. Thus, any profits distributed to the new shareholder during the year in which the share-for-share transfer takes place are subject to trade tax.

  • The trade tax treatment of dividends under the tax group rules—The lower tax court of Münster held that dividend income from a foreign corporation (substantial shareholding) received by a controlled company in Germany must not increase the trade income of the controlling entity, and that no general addition of non-deductible business expense (in the amount of 5%) is required.

  • Depreciation on shareholder loans—The federal tax court (BFH) addressed when the prohibition of profit deductions for write-downs of loans from major shareholders to a lower going-concern value applies if the shareholder holds (or has held) more than 25% of the corporation at any time during the term of the loan.

  • Costs of selling a shareholding—The federal tax court (BFH) addressed the determination of gain on the sale, and focused on the allocation of selling costs to a specific transaction or to a specific point in time in three cases concerning (1) subsequent adjustments of the selling price or of selling costs, to apply retroactively to the gain; (2) bonus payments not treated as selling costs; and (3) losses from securities forward transactions treated as selling costs.

Read a July 2014 report prepared by the KPMG member firm in Germany: German Tax Monthly (July 2014)

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