Tax Treaty Case Law around the Globe 2016

S. 211Chapter 17 Germany: Timing Issues in case of Termination of a Permanent Establishment

Alexander Rust

17.1. Facts of the case

A corporation resident in Germany earned income through a permanent establishment (PE) in Belgium. It had to create a provision which was attributable to the activity of the PE. A few years later, the PE was closed. Several years after the closure of the PE, the provision was finally reversed. Due to the reversal of the provision, the tax administration increased the profit of the corporation. As the PE no longer existed at the moment of the reversal of the provision, the tax administration did not exempt the profit by virtue of the DTC Belgium-Germany 1969. The taxpayer argued that if the loss caused by the creation of the provision was not taken into account due to the exemption method in the DTC Belgium-Germany, the profit arising from the reversal of the provision must be exempt as well. According to the taxpayer, the fact that the PE no longer existed at the moment the profit arose is irrelevant, as the principle of causation requires attributing the profit to the state of the former PE. The corporation brought an action against the tax assessment and the T...