Global

Details

  • Service: Tax, International Corporate Tax, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 9/28/2012

Germany - Hidden reserve tax treatment referred to CJEU 

September 28:  The European Commission this week announced it has referred Germany to the Court of Justice of the European Union (CJEU) with respect to the German tax rules on the reinvestment of hidden reserves.

German tax rules allow taxable persons to transfer hidden reserves, tax-free, from sold assets to other newly purchased assets. This transfer of hidden reserves can take place in two ways.


  • First, the taxable persons can deduct the capital gains from the new assets during the business year in which the sale took place.
  • Second, the taxpayer can create a reserve to reduce its profit and transfer this to assets that it procures during the next four or six business years.

However, this is only possible if the new assets are reinvested in a German permanent establishment. If the new assets are reinvested in a foreign permanent establishment, the hidden reserves cannot be transferred and thus are immediately taxed.


In referring the matter to the CJEU, the EC stated (IP/12/1019, 27 September 2012) that, if a taxpayer wishes to sell certain fixed assets in order to establish itself in another EU Member State, or to expand its business activities abroad, it will be at a disadvantage. The EC found that this unequal treatment can discourage cross-border investments and that the discriminatory nature is contrary to EU rules.



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