|Thomas Schänzle||Christian Birker|
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.