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Germany: New anti-double-dip-provisions for German tax groups

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Thomas Schänzle

Christian Birker

Parliament has recently enacted a number of important changes to the German tax group (Organschaft) regime. Some of the changes are welcome, particularly those easing and clarifying the formal requirements for Organschaft recognition, but others are problematic. The main instance of this latter are the dual consolidation loss (DCL) rules which now apply not only to the Organschaft parent but, with effect for all open cases, to each and every member. The intention is to combat perceived double-dip arrangements. Under the new wording, a loss of an Organschaft parent or subsidiary is to be disregarded (without carryforward) for German tax purposes to the extent it is taken into account under a foreign tax regime applied to the controlling entity, the controlled entity or any other related or unrelated party. Despite intense debate, there is still uncertainty as to the impact of these new provisions, in particular whether they apply to a German partnership as an Organschaft parent and as to the exact meaning of "losses taken into account" under a foreign tax regime. Apart from interpretive issues raised by the rule's clumsy wording, its retroactive effect probably violates constitutional law. Its conformity with European law is also questionable.

The broad wording of the new DCL rules goes far beyond the legislative intent of thwarting tax planning schemes aimed at a double dip of losses in Germany and abroad. Ordinary German inbound and outbound structures involving a German Organschaft can also be affected, such as where the foreign shareholder deducts a German Organschaft loss under a tax credit system. In such a case, the disallowance of German Organschaft losses may result in an effective double taxation.

Existing German Organschaft structures should be carefully reviewed as timely measures may have to be taken to avoid or mitigate adverse German tax consequences under the new DCL rules.

Thomas Schänzle (thomas.schaenzle@de.pwc.com)

Tel: +49 69 9585 6477
Christian Birker (christian.birker@de.pwc.com)

Tel: +49 69 9585 6061

PwC

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