The proposal came in response to an EU infringement procedure against Germany, which claimed that the current German Organschaft rules violate EU laws.
Along with these changes, the draft legislation also provides for an amendment of the German dual-consolidated loss (DCL) rules that would significantly expand the scope of these rules.
Under the proposal, a DCL would arise if a loss of either an Organschaft parent or an Organschaft subsidiary could be deducted in another jurisdiction either by the Organschaft parent, the Organschaft subsidiary or, alternatively, by another person. As a consequence, a tax deduction of such loss would be denied for German tax purposes. The proposed new DCL rules are drafted so that it would equally apply to all members of an Organschaft regardless of whether such entities are dual tax residents.
Although not explicitly defined by legislative language, the current German DCL rules are interpreted to apply to dual resident companies only. Therefore, these rules have practically affected only a relatively small group of German companies in the past.
Under the draft proposal, the new rules would apply to all open tax years and thus affect prior years as well.
The legislative process is expected to enter into its final phase in late October / November of 2012. However, because the proposed changes to the German DCL rules go beyond the intention of making the current Organschaft rules “EU compatible,” it remains to be seen whether the draft legislation will be relaxed during the upcoming legislative proceedings.
Prudent taxpayers may want to review the impact of the proposed legislation on their financing arrangements and consider potential adjustments or replacements.
For more information, contact a KPMG tax professional in Germany:
Read an October 2012 report (PDF 118 KB) prepared by the KPMG member firm in Germany: Proposed law change of German Dual- Consolidated Loss (DCL) Rules to impact various financing arrangements with German companies