date | theme

23. August 2018 | GmbH loss carry forwards: § 8c KStG unconstitutional -> objection & deadline

11. November 2018 | Save the loss carry forwards at the GmbH: the new § 8d KStG helps!

17. February 2019 | Buy loss carryforwards from GmbH: 6 new strategies for the use of losses

10. December 2021 | International loss offsetting: In relation to the EU’s fundamental freedoms (this contribution)

International loss offsetting is particularly relevant for larger companies, such as corporations and holding companies. However, smaller companies have also increasingly experienced tax complications with the case law of the ECJ. In addition, future legal decisions are not foreseeable and thus there can be no question of a secured legal situation. This topic is explained in the following in the core and the differences of case law as well as their complexity explained.

When taxing foreign income, a distinction must be made in two cases. Because on the one hand, the world income principle applies in principle. On the other hand, the so-called territoriality principle often also applies in countries. This means that in the country in which a company is established, it is also usually subject to taxation.

Now the world income principle, which applies to companies within the framework of the unlimited tax liability according to § 1 (1) EStG or § 1 (1) KStG, states that all income is added to the tax base first and taxed. The prerequisite here is that a natural person has his or her domicile according to § 8 AO or his or her habitual residence according to § 9 AO in Germany. On the other hand, in the case of a corporation, the management according to § 10 AO or the seat according to § 11 AO must be in Germany.

Otherwise, at most a limited tax liability according to § 1 (4) EStG can exist exclusively with the domestic income according to § 49 EStG.

A domestic company can operate abroad, for example, through an independent company or a permanent establishment (§ 12 AO). The subsidiary is subject to unlimited corporate tax in its country of residence.

However, in the country of the company at most the limited tax liability arises. The profits generated by foreign permanent establishments would in principle be included in the German tax base because of the world income principle. The cause of double taxation is, as in most cases, due to the coexistence of the world income principle and the territoriality principle.

This method is unilaterally regulated according to § 34c (1) EStG and § 26 KStG. Also bilateral under Article 23B OECD-MA. Here, a residual taxation in the residency state takes place first. Finally, the profit from abroad is added to the result in Germany and the foreign tax paid on it is deducted from the domestic determined. This logically leads to an increase in the foreign tax rate to the German tax level.

Only bilateral application under Article 23A OECD-MA is envisaged. This is because the residency state completely transfers its tax claim to the source state. Consequently, income treated by this method is taxed exclusively abroad and thus, in the case of a lower tax rate, this reduced rate is fully exploited. However, the progression reservation must be observed here. According to § 32b (1) no. 3 EStG, this must be ensured, so the profit from abroad must hypothetically be added in Germany to determine the applicable tax rate and deducted immediately afterwards. Nevertheless, the tax rate determined is then applied to exclusively German income.

It always applies the employment contract of the EU (TFEU) for topics, which is done in cooperation by the European states. However, there is no instruction as to which of the methods should be used, but is left to the states to clarify this bilaterally.

Now the economic goal of individuals or companies is to achieve a complete use of losses. This is also the essential and central requirement of the objective net principle. This results in the following applications: