• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 2/4/2014

Germany - Exit taxation on reorganizations; EU law compatibility 

February 4:  In a recent judgment, the Court of Justice of the European Union (CJEU) addressed the effect of the German exit taxation provisions on reorganizations and the compatibility of exit taxation with EU law.

The CJEU considered the German exit tax rules—specifically, a provision allowing the taxation of hidden reserves to be spread out over five years if the transfer takes place within the EU—are compatible with EU law.


Provisions in German law concerning exit taxation aim that “hidden reserves” are taxed in Germany when Germany’s right to tax profits derived from an asset’s sale or use is precluded or restricted. Exit taxation applies, for example, if a business asset is transferred from a German business to a foreign permanent establishment.

Exit taxation, in principle, is triggered immediately on transfer; however, if the asset transfer takes place within the EU, taxation of the hidden reserves may be spread out over five years on request.

CJEU judgment

Up to now, it has been unclear whether the German exit tax rules are compatible with EU law.

A lower tax court (Dusseldorf) referred a question to the CJEU as to whether the German exit taxation rules—specifically, the five-year extension provision—are deemed compatible with EU law. The CJEU issued its judgment C-164/12 on 23 January 2014.

Read a February 2014 report [PDF 1.48 MB] prepared by the KPMG member firm in Germany: German Tax Monthly

The KPMG report also discusses the following topics:

  • Tax treatment of acquisition of own shares
  • CFC rules – Are imputed income amounts subject to trade tax?
  • Tax consequences of the deletion from the commercial register of a British holding company
  • Recognition for tax purposes of disproportionate profit distributions
  • Application of the EU Parent-Subsidiary Directive and other directives to accession state Croatia
  • Promulgation of the AIFM Taxation Adjustment Act in the federal law gazette

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