In order to improve the business location Germany, the German Cabinet on 19 September 2012 has proposed an Act to change and simplify the company taxation and the tax law regarding travel expenses. The Act will primarily simplify the rules regarding the fiscal unity for tax purposes.

The proposal contains the following changes:

  • The cap for losses carried back of currently 511,500 EUR resp. 1,023,000 EUR shall be raised to 1,000,000 EUR resp. 2,000,000 EUR.
  • The draft law now officially allows that companies resident in a member state of the European Union or a contract state of the EEA Agreement may qualify as a controlled company for a tax group, if their place of management is in Germany. With this change, the law will be adjusted to the existing practice of tax authorities.
  • The most helpful amendment will allow fiscal unities to be accepted for tax purposes, even if the profit transferred was not computed correctly, if it was the profit resolved upon with the annual accounts. This will require that the fault is not based on a lack of diligence and that it is corrected with the next possible annual financial statements.
  • Negative income of both the parent company and the controlled company shall, in future, only be offsetable, if it has not been considered for tax purposes outside of Germany. This could be interpreted that the use of fiscal unities for entities held by an American company where a check-the-box-election has been carried out might not be available. Hopefully, this will be rectified during the legislative process.
  • On the other hand, more red tape will, under the proposal, come for tax groups where controlled companies do not qualify as joint stock companies (German Aktiengesellschaft). Agreements in these cases will have to contain a dynamic reference to Sec. 302 German Stock Corporation Act (AktG) “in its current version“. Even existing contracts shall have to be adapted until the expiry of 31 december 2014.
  • Apart from that, the proposal contains amendments to the law regarding travel expenses and changes in procedural law.