Precondition to form a tax group
One of the preconditions to form a German tax group is the controlling influence of a company over another entity (financial integration). Further it is required, that the two companies agree a profit and loss pooling agreement: The subsidiary is obliged to transfer its total profits. On the other hand the parent company must compensate potential losses of its subsidiary. The agreement must be signed for a minimum period of five years.
In case, that one of the preconditions is not met, the companies will be taxed on a stand-alone basis. In certain cases, this will trigger retroactive tax adjustments.
Company A has been acquired (100%) in February by company B. Subsequently company B transferred some assets to company A. The transaction felt under the scope of the German Reorganisation Tax Act. Consequently it has been treated as a tax neutral reorganisation (spin-off) with retroactive effect (1 January 2005).
However the judges do not recognize the tax group for year 2005, as the financial integration requirement has not been met from the beginning of the year onwards. The retroactive tax effect due to the Reorganisation Tax Act has no effect for the group taxation rule.
Federal Tax Court (I R 19/15; I R 51/15)