In official guidance published on 28 March 2011, the German Ministry of Finance (BMF) advised the local tax offices in Germany to allow the formation of a tax group (Organschaft) between a German parent company (or a foreign parent with a German registered branch) and its subsidiary established in an EU/EEA Member State whose place of management and control is in Germany. The guidance is in response to an infringement procedure initiated by the European Commission against Germany with respect to the requirements for forming a tax group. Currently, it is necessary for the subsidiary company of the group to have both its registered seat and its place of management and control in Germany. The Commission considers the dual residence requirement discriminatory with respect to dual resident subsidiaries that are treated as resident taxpayers in Germany (see the Commission’s press release of 30 September 2010, IP/10/1253).
According to the BMF guidance, such a dual resident company must be allowed to be a subsidiary of an Organschaft with its income taxable in Germany, if “the additional requirements for forming an Organschaft are met”. It is doubtful that Germany has fully implemented the changes requested by the Commission because it still seems to be necessary that the head of the group and the subsidiary conclude a profit and loss pooling agreement (PLPA), at least with respect to the German-source income of the dual resident subsidiary. Since the legal systems of most other EU/EEA Member States do not have the concept of a PLPA, it is unlikely that such PLPA could be validly concluded. It remains to be seen whether the German BMF will waive the PLPA requirement. Meanwhile, affected taxpayers intending to form a tax group should conclude a PLPA, even if it cannot be registered in the foreign commercial registry.
If you have any questions, please contact the authors of the article at gtln@deloitte.de or your regular Deloitte contact.
