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Newsalert EU Direct Tax Group
www.pwc.com
Newsalert
EU Direct Tax Group
22 December 2015
CJEU Judgment in Timac Agro on German rules
on loss recapture / final losses
EU Direct Tax Group
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On 17 December 2015, the CJEU recapture rule. The application of
published its decision in the Timac this rule is however justified,
Agro case (C-388/14).
because the recapture forms a
logical symmetry with the previous
Facts
loss deduction. Therefore, the
A German GmbH sold its Austrian recapture rule – in line with the
PE intra-group in 2005. Over the Krankenheim decision (C-157/07)
periods 1997-1999 and 2001-2004 dealing with the recapture of actual
the PE incurred losses.
profits – is coherent and necessary
to preserve the balanced allocation
Irrespective of the fact that the
income of a foreign PE is tax-exempt of taxing powers. It is up to the
due to the DTT Germany-Austria referring court to determine
and that Germany interprets the whether the recapture rule is also
exemption method symmetrically, proportionate, i.e. whether Timac
the losses had been deducted in Agro was in fact able to provide
1997-1998 at the level of the German sufficient evidence that the losses
head office (i.e. temporary deduction incurred are final. If so, they should
with recapture, former Sec. 2a para. be deductible.
3 German Income Tax Act (GITA)).
For 1999 and onwards, here the
Due to the sale, the German Tax CJEU distinguished the application
Authorities applied the recapture of the exemption method from the
rule (Sec. 2a para. 4 GITA) which
provided for a loss recapture even if recapture rule which had been
there were no actual profits applicable in earlier years. It
generated by the sale. Hence, the considered that Germany now
losses deducted in 1997-1998 were exempts foreign PE income
added to the taxable income of the symmetrically via the exemption
German head office in 2005. The method of the underlying DTT.
losses incurred in 1999/ 2001-2004 Therefore, in the view of the CJEU,
had been exempted via the DTT
Germany-Austria,
since
the the situations of a foreign and a
temporary deduction had been domestic PE are not objectively
comparable anymore.
abolished as of FY 1999.
The claimant argued that the Takeaway
recapture rule is not in line with EU
law and the losses are “final losses”. It remains to be seen how the
CJEU’s
view on the objective
Judgment
comparability
test
can
be
For the period 1997/1998, the CJEU reconciled in the future with the
considered that the situations of a judgments in Marks & Spencer (Cforeign and a domestic PE are 446/03), Lidl Belgium (C-414/06),
comparable
because
Germany K (C-322/11) and Commission vs.
exercised a taxing right via the UK (C-172/13).
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