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The Resource Re Reduction of profits in connection with the sale of shares in S : 9 K 509/07 K, F

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Summary: Judgment by the Finanzgericht (Finance Court) Münster 9th Chamber dated 22 February 2008. The taxpayer was a German company which indirectly owned several Dutch companies. The taxpayer made a loan to one Dutch subsidiary. The loan agreement provided that the borrower would pay the taxpayer interest but the repayment of the capital would be of lower priority than any obligations the borrower had outside the group. Subsequently the borrower sold all its assets to another member of the group, and then satisfied its obligations to third parties, after which it had no assets and it made no further payments to the taxpayer. The taxpayer wrote off the loans and associated expenditures, reducing its profits. The German tax authorities refused to allow the deductions under s 1 (1) of the Taxation of Foreign Transactions Act (AStG). The taxpayer disputed that the criteria of s 1(1) were met and also that s 1(1) was contrary to EC law since by distinguishing between loans made to domestic and other EU subsidiaries, it infringed the freedom of establishment. It was held that the difference in treatment for cross-border situations indeed infringed the freedom of establishment and could not be justified in accordance with the case law of the ECJ and by the equivalent of art 9 of the OECD Model

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Label: Re Reduction of profits in connection with the sale of shares in S : 9 K 509/07 K, F

Title: Re Reduction of profits in connection with the sale of shares in S : 9 K 509/07 K, F

Summary: Judgment by the Finanzgericht (Finance Court) Münster 9th Chamber dated 22 February 2008. The taxpayer was a German company which indirectly owned several Dutch companies. The taxpayer made a loan to one Dutch subsidiary. The loan agreement provided that the borrower would pay the taxpayer interest but the repayment of the capital would be of lower priority than any obligations the borrower had outside the group. Subsequently the borrower sold all its assets to another member of the group, and then satisfied its obligations to third parties, after which it had no assets and it made no further payments to the taxpayer. The taxpayer wrote off the loans and associated expenditures, reducing its profits. The German tax authorities refused to allow the deductions under s 1 (1) of the Taxation of Foreign Transactions Act (AStG). The taxpayer disputed that the criteria of s 1(1) were met and also that s 1(1) was contrary to EC law since by distinguishing between loans made to domestic and other EU subsidiaries, it infringed the freedom of establishment. It was held that the difference in treatment for cross-border situations indeed infringed the freedom of establishment and could not be justified in accordance with the case law of the ECJ and by the equivalent of art 9 of the OECD Model

Citation source: In: International tax law reports. - London. - Vol. 12 (2010),

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Label: Re Reduction of profits in connection with the sale of shares in S : 9 K 509/07 K, F

Label: Re Reduction of profits in connection with the sale of shares in S : 9 K 509/07 K, F

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