Global Daily Tax News, Germany To Face ECJ On Capital Gains Tax Rules, (Nov 15, 2024)

The European Commission has decided to refer Germany to the EU Court of Justice for having failed to remedy the infringement of the free movement of capital (Article 63 TFEU and Article 40 of the EEA Agreement) due to its discriminatory tax treatment of reinvested capital gains upon sale of real estate located in Germany.

Germany grants a deferral of taxation for reinvested capital gains made on the sale of real estate located in Germany provided that the real estate has been attributed to the fixed assets of a domestic permanent establishment for an uninterrupted period of at least six years.

Corporations established in Germany, even without a business activity therein, are deemed to have such a permanent establishment at their place of management (that is, in Germany). Comparable corporations established in other EU/EEA member states are deemed not to have such permanent establishments in Germany. Hence, they are denied such tax deferral on reinvested capital gains from the alienation of German real estate.

The Commission sent a reasoned opinion to Germany in November 2019 and actively engaged in further discussions with Germany to resolve the issue. However, the Commission considers that efforts by the authorities have, to date, been insufficient and is therefore referring Germany to the Court of Justice of the European Union.