The Federal Tax Court (BFH) held that for the years at issue (2005-2007), the controlled foreign company (CFC) rules for passive income requiring an add-back of passive income with an investment character did not violate the free movement of capital under the EU treaty.
The German CFC rules apply if a foreign company (owned by shareholders who are subject to unlimited tax liability) generates passive income and is subject to a lower rate of tax in the country or state where it is registered. By applying the CFC rules, the company’s income is allocated to the shareholder (that is, this income is subject to domestic taxation).
In the case before the court:
The court held that the standstill clause (that a rule does not violate EU law if it were already in existence on 31 December 1993 and had continued in existence since that date, essentially unchanged and uninterrupted) was not applicable because the CFC rules had been fundamentally changed by a German tax law in 2001.
Read a December 2019 report [PDF 355 KB] prepared by the KPMG member firm in Germany
The KPMG report also includes brief discussions of the following tax developments:
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