In two rulings, the Federal Fiscal Court (BFH) ruled in favor of the taxpayer on the requirements for a consolidated tax group for income tax purposes.
Facts of the Case
A profit and loss transfer agreement existed between the plaintiff (GmbH) as the controlled company and X-KG as the controlling company. X-KG held shares in a total of nine subsidiaries, had no employees of its own and did not provide any intra-group services.
The tax office did not recognize the corporate tax group between the plaintiff as the controlled company and X-KG as the controlling company, as X-KG had not taken up any commercial activity of its own in the year in dispute and the mere activity as a managing holding company did not qualify as a commercial activity pursuant to Section 14 para. 1 sentence 1 no. 2 sentence 2 Corporate Income Tax Act (KStG). The tax court of the first instance, on the other hand, considered X-KG to be a suitable controlling company and upheld the action.
Decision of the Federal Fiscal Court
The BFH confirmed the tax court's decision on the grounds that a commercial activity within the meaning of Section 14 para. 1 sentence 1 no. 2 sentence 2 KStG also exists if the controlling partnership acts exclusively as a managing holding company. Contrary to the opinion of the tax authorities, intra-group paid services or other additional commercial activities are not required.
Referring to the case law on economic integration, the BFH further states that it is sufficient for the assumption of a commercial activity if the management activity is externally recognizable based on an overall assessment of all circumstances of the respective individual case. This is particularly the case if the holding company draws up guidelines on the business policy of the dependent companies and forwards them to them or issues them with written instructions. Under certain circumstances—according to the BFH—written recommendations, meetings, and consultations may also be sufficient for the assumption of commercial activity.
Facts of the Case
The plaintiff (GmbH) had concluded a profit transfer agreement with its sole shareholder (KG) as a controlled company. In addition, an atypical silent partnership was established between the KG and the GmbH.
The tax office and the tax court of first instance were of the opinion that the atypical silent partnership in the GmbH was detrimental to the recognition of the consolidated tax group for income tax purposes due to the lack of transfer of the entire profit under the profit transfer agreement.
Decision of the Federal Fiscal Court
The BFH came to the conclusion that the atypical silent partnership in the GmbH does not prevent the transfer of the "entire profit" and thus the establishment of a consolidated tax group for income tax purposes. Irrespective of the existing atypical silent partnership, the controlled company can transfer its "entire profit" within the meaning of Section 14 para. 1 sentence 1 KStG to the controlling company.
The BFH bases its opinion in particular on the reference in Section 14 para. 1 sentence 1 KStG to Section 291 German Stock Corporation Act (AktG). It follows from this that civil law is decisive for the question of how the "entire profit" is to be determined. The object of the transfer obligation is therefore the net profit for the year pursuant to § 301 sentence 1 AktG and not the profit determined under tax law. The profit share of the atypical silent partner is to be recognized as an expense under civil law and thus reduces the annual net profit to be transferred. The net profit for the year reduced on this basis then constitutes the "entire profit" within the meaning of Section 291 para. 1 sentence 1 AktG.
It is welcome news to taxpayers that the BFH has positioned itself against the view of the tax authorities with these two rulings on fiscal unity. However, it remains to be seen how the tax authorities will react to the new case law.
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