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What Is A Profit And Loss Transfer Agreement

The formation of a German tax group assumes that the parent company and the group`s company enter into a profit and loss management contract. The conditions for the recognition of such an agreement for German tax purposes have been changed several times over the past ten years, including the condition that the parent company must be held liable, in accordance with the agreement, for losses incurred by the group`s company, in which the group`s company is a German limited liability company (GmbH). Section 17 of the Corporate Income Tax Act (KStG) requires, in its most recent version, a dynamic reference to the legal provisions relating to loss liability, where the group`s company is a limited company (Aktiengesellschaft – AG), as stated in Section 302 of the Shares Act (AktG). In accordance with the BMF circular, profit and loss transfer contracts that must expire before January 1, 2020 cannot be amended as noted above. The same applies to profit and loss transfer agreements, of which the group`s company is a German limited company. It should be noted that in addition to the modification of the profit and loss transfer contract and the approval of the general meetings of the parent companies and the group`s companies, the revised agreement must be registered in the trade register to take effect and, in accordance with the BMF circular, the date of such registration must meet the aforementioned deadline. Therefore, the amendment to the profit and loss transfer contract must be properly submitted to the register by December 31, 2019 in order to be registered in a timely manner. The contracting parties take note of certain old German profit and loss transfer agreements (“PLTA”). In accordance with the Federal Ministry of Finance circular of April 3, 2019, the PLTA must be amended by December 31, 2019 with controlled SARLs (“SARL”) to ensure that an existing income tax group will continue to be recognized in the future. The PLTTs concerned include those that were closed before 1 January 2006 and do not contain references to the provisions of Article 302, paragraph 4, of the Act of 9 December 2004. These references may contain formulations such as .B. “Losses are covered in accordance with Article 302, paragraphs 1 to 3, of the act.” According to the administration`s previous opinion (BMF of December 16, 2005), this requirement did not apply to contracts concluded before January 1, 2006.

The Bundesfinanzhof decided otherwise in its judgment of 10 May 2017 (DStR 2017, 2429). The BMF is now following this interpretation. Existing contracts must therefore be amended by December 31, 2019 to include a dynamic reference to the modified version of page 302 of the aktG in its current version. The minimum five-year period for tax groups has not been revived. The amendment to the PLTA must be made in writing and approved by the shareholders of the control company and by the parent company. The decision of the GmbH shareholder must be notarized and recorded in its trade register so that the transposition can begin in a timely manner. For subsidiaries in the legal form of a limited company (i.e. AGs and not limited liability companies such as SARLs), AktG Rule 302 already applies to the law.