GERMANY Law and Practice Contributed by: Michael Best, Gerald Herrmann and Jannis Lührs, POELLATH
2.6 Consolidated Tax Grouping Consolidated tax grouping ( Organschaft ) enables groups of companies to offset the losses and profits within a group of subsidiaries against the profits of their parent company (and profits transferred to the parent company from other subsidiaries). It requires that: • the parent company holds the majority of voting rights in the subsidiary; • the shareholding in the subsidiary is allocated to a domestic permanent establishment of the parent company; and • a profit and loss transfer agreement (PLTA) has been concluded and executed for at least five years. However, it should be noted that, under the PLTA, the parent company is also liable for the losses of its sub - sidiaries. 2.7 Capital Gains In effect, 95% of capital gains deriving from the sale of shares in other corporations are tax exempt, resulting in an effective tax rate of 1.5%. However, from time to time it is discussed that the tax exemption for capital gains will only apply for shareholdings of at least 10% in future. 2.8 Other Taxes on Transactions If immovable property is transferred, RETT becomes due. The applicable tax rate depends on where the immovable property is situated in Germany, and varies between 3.5% and 6.5%. If at least 90% of the shares in a corporation or, similarly, at least 90% of the partnership interest in a partnership owning real estate situated in Germany is directly or indirectly transferred to one purchaser or a group of related parties, then the transaction could trigger RETT. Furthermore, the (direct or indirect) transfer of (i) a partnership interest in a partnership owning real estate situated in Germany or (ii) shares in a real estate-owning corporation of at least 90% within a ten-year period to new shareholders could be deemed a taxable event. However, this does not apply for stock exchange transactions in shares of listed companies within the EU/EEA.
• if net interest income does not exceed EUR3 mil - lion each business year; • if the company is only partially part of a group of companies (the “standalone clause”); or • if an equity comparison shows an equity equal to or higher than the equity of the group of companies (the “escape clause”). The standalone clause does not apply to corporations in the case of harmful debt financing (interest payable to the shareholder exceeding 10% of such interest payable that exceeds interest income) by sharehold - ers/persons related to shareholders/third parties with considerable influence on shareholders holding more than 25% of shares in the corporation. The escape clause is not applicable in the case of harmful debt financing within the whole group of companies. Inter - est exceeding the 30% threshold may be carried for - ward indefinitely (“interest carry forward”), except in the case of the sale of more than 50% of the shares within five years. From 2024 onwards, all three exemptions (exemption limit of EUR3 million, standalone clause and escape clause) do not apply to the extent interest expenses were increased due to an interest carry forward. In addition, from 2024 onwards, the definition of interest will be extended to include economically equivalent expenses and other expenses in connection with the raising of debt (eg, agency fees or arrangement fees). As of 2024, interest expenses resulting from an intra- group cross-border financing relationship are not deductible: • if the taxpayer is not able to credibly demonstrate that: (a) the capital service could have been provided for the entire term from the beginning; and (b) the financing is economically needed and used for the business purpose; or • if the interest rate to be paid exceeds the interest rate at which the company could finance itself on the basis of the group rating, whereby it is possible to provide evidence of the contrary on the basis of an individual rating derived from the group rating.
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