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 The EUDTG is one of PwC’s Thought Leadership Initiatives and embedded in PwC’s Global Tax Policy Network. The EUDTG is a pan-European network of EU tax law experts and provides assistance to organizations, companies and private persons to help them to fully benefit from their rights under EU law. Should you be interested in receiving the free bimonthly newsletter, then please send an e-mail to [email protected], with “subscription EU Tax News”. For more detailed information, please do not hesitate to contact: Jürgen Lüdicke PwC Germany +49 40 6378 8423 [email protected] Ronald Gebhardt PwC Germany +49 40 6378 1113 [email protected] Or your usual PwC contact 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). This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2015 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.