ECJ – Recent Developments in Direct Taxation 2014

I. S. 42Case C-591/13, Commission v. Germany

A. Facts of the Case

The European Commission started an infringement procedure against Germany in November 2013. Germany grants a roll-over relief for certain capital assets of a business. The tax on a capital gain on these assets can be deferred if the taxpayer buys a similar asset and transfers the basis of the sold asset to the newly purchased asset. Through the roll-over relief, the built-in gain/hidden reserves are transferred to the newly acquired asset. This has the advantage of avoiding immediate taxation but it comes with the disadvantage that depreciation allowances will be lower. The deferral is, however, only granted if the newly purchased assets belong to a domestic permanent establishment. Where the new assets are attributable to a foreign permanent establishment, the roll-over relief is denied. According to the Commission, this different treatment violates the freedom of establishment protected by Article 49 TFEU and Article 31 of the EEA Agreement.

It is interesting to note that the German lower tax court of Lower Saxony has already regarded the geographical limitation of the German roll-over relief rules as a violation of the fu...