Pursuant to Germany’s corporation tax law, German companies are taxed on their worldwide profits. With respect to the calculation of the profits, partial write-downs of a shareholding’s book value constitute operating expenses deductible in calculating profits. Remaining losses may be deducted in other years and carried back or forward as tax losses. However, the tax offsetting of such partial write-downs has been treated differently depending on whether the subsidiary concerned is established within or outside Germany. Losses from partial write-downs on shares in a German company can be offset against all the taxpayer’s income. The write-down losses related to shares in a foreign company can only be offset against foreign income of the same origin. According to the European Court of Justice (ECJ) (Case C-347/04), these German rules restrict freedom of establishment.