• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 8/2/2013

Germany - Earnings stripping rules not unconstitutional, lower court holds 

August 2: A lower tax court in Germany rejected a taxpayer’s claim that the German earnings stripping rules are unconstitutional. FG Baden-Württemberg Entscheidung vom 26.11.2012, 6 K 3390/11

Read the decision (German)

In the view of the lower tax court, spreading the interest expense deduction out in time and extending it to cover debt financings within purely domestic groups did not render the earnings stripping rules unconstitutional.

Rather, the court found the earnings stripping rules were designed to prevent tax structuring that allows international groups to shift their interest expenses to Germany while interest income is allocated to low-tax jurisdictions. The fact that the earnings stripping rules also affect purely domestic situation was attributed to the idea that treating domestic and cross-border cases differently within the EU would be incompatible with EU law.

KPMG observation

The court’s decision concerns the earnings stripping rules (as amended by the 2008 business tax reform). The principles of the decision, however, are viewed as also being applicable to the current version of the earnings stripping rules. The taxpayer has filed an appeal, and a suspension of cases concerning similar challenges to the earnings stripping rules could be possible.

Read an August 2013 report [PDF 1.4 MB] prepared by the KPMG member firm in Germany: German Tax Monthly (August 2013)

Also discussed in this report are the following topics:

  • Real estate transfer tax – Indirect change in the membership of a partnership owning real property
  • Final losses from futile expenses for the purchase of vacation rentals in other EU Member States
  • Protocol amending the income tax treaty between Germany and Norway is signed
  • E-balance sheet – Publication of Taxonomy Version 5.2
  • Shift of responsibility for withholding tax and tax assessment procedure to the federal central tax office

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