Regarding Non-Recognition of Profit Transfer Agreements: Infringement Proceeding Against Germany

By Brigitte Jakoby, Jakoby Dr Baumhof – Wirtschaftsprüfer Steuerberater Rechtsanwälte

On 25 July 2019, the EU Commission decided to initiate formal infringement proceedings against Germany regarding the non-recognition of profit transfer agreements which are in accordance with the laws of another EU member state. The background is that profit transfer agreements in Germany must be registered at the seat of the company. Furthermore, the contract must originally be concluded under German law – relevant to 291 AktG (Stock Corporation Act).

Currently, Germany ignores profit transfer agreements concluded under the laws of other EU countries with companies which have transferred their effective administrative seat to Germany. These companies, which were founded under the laws of another EU member state, cannot fulfil the formal German registration requirements. For the German tax authorities, the registration of contracts in a company register of an EU member state is not considered to be equivalent to registration in a German company register.

Consequently, such a group of companies is treated less favourably than a group of companies whose members uniformly have their seats in Germany. The regulations would prevent companies with a seat in other EU member states from founding companies in Germany.

The EU Commission considers this German practice as a violation of the European freedom of establishment.

Although the Frankfurt am Main OFD (Regional Finance Offce) has reacted with an administrative circular explaining under which circumstances foreign profit transfer agreements can be approved, this circular will probably not be enough to cure the violations.

Brigitte Jakoby

GGI member firm
Jakoby Dr Baumhof - Wirtschaftsprüfer Steuerberater Rechtsanwälte
Advisory, Auditing & Accounting, Corporate Finance, Law Firm Services, Tax
Rothenburg o.d.T., Ebersberg, Germany
T: +49 9861 9405 0
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W: www.jakoby-baumhof.de

Jakoby Dr Baumhof - Wirtschaftsprüfer Steuerberater Rechtsanwälte is a mediumsized interdisciplinary company located in the south of Germany, with offices in Rothenburg o.d. Tauber, located in Northern Bavaria, and Ebersberg, near Munich.

In 1987, Brigitte Jakoby started collaborating with her husband Eugen Jakoby, also a German Chartered Accountant and German Certified Tax Advisor. Since 1996, she has been one of the Senior Partners at Jakoby Dr. Baumhof.

Published: International Taxation Newsletter, No. 12, Spring 2020 l Photo: jarek106 - stock.adobe.com