German fiscal unity taxation: with a sub-subsidiary

By Bernhard Schwechel, FACT GmbH

Multinational groups often hold their domestic and foreign sub-subsidiaries by an intermediary holding company, which is resident in a different country (e.g. Luxembourg) to its parent company (Germany). In this case, a tax-optimised profit repatriation from the sub-subsidiaries to their grandparent company depends on the conditions of the double tax treaties (DTA). But often, due to anti-treaty shopping rules, the foreign intermediary holding is not able to benefit from a reduced withholding tax rate stipulated in the DTA.

To improve this structure, a fiscal unity between the domestic grandparent company in Germany and its domestic sub-subsidiaries can be used for a consolidation of profits and losses, which will in this case avoid a distribution of dividends and potential withholding taxes. Compared with several other EU countries, a fiscal unity between a German grandparent company and its German sub-subsidiaries has been accepted by the authorities in Germany for many decades, even when the holding company is resident in another country.

By comparison: in France and the Netherlands, a fiscal unity between a grandparent company and its subsubsidiary could principally not be implemented if the intermediary company is not a domestic resident as well. Due to at least two decisions by the European Court of Justice, most
recently in 2014, France and the Netherlands were also forced to accept this structure.

Bernhard Schwechel
FACT GmbH Steuerberatungsgesellschaft, Wirtschaftsprüfungsgesellschaft
Kassel, Germany
T: +49 561 316 686 0
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FACT GmbH is a tax consultancy and public auditing company located in Kassel, known as the heart of Germany. FACT provides German and international accountancy and tax services to companies and individuals. The experienced team works on cross-border issues for both German and foreign clients. FACT works closely with its clients and responds rapidly to their needs.

Bernhard Schwechel is a Managing Partner of FACT. He is experienced in the field of international taxation. His areas of expertise include tax  and business advice for large multinational corporations, mid-sized companies and internationally-oriented individual clients. He supports his clients throughout inbound and outbound M&A projects.

published: April 2015

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