Dual Resident Companies and the Implementation of the Parent-Subsidiary Directive by Germany in Light of European Union Secondary Legislation and Primary Law: An Analysis and Review

Due to the European Court of Justice (ECJ) jurisprudence (Inspire Art/Centros/Überseering/Cartesio), the cross-border mobility of companies within the European Union (EU) area may increase steadily. Companies that have been established under the domestic law of one Member State with their statutory seat and registered office in that state (state of incorporation) but have their place of effective management in a different Member State are currently quite common.

Such companies are called dual resident companies. For the first time in the literature on taxation, this article reviews the implementation of the Parent-Subsidiary Directive (90/435/EC) by Germany with respect to dual resident subsidiary companies that distribute their profits to a domestic German parent company. The Parent-Subsidiary Directive is part of the EU secondary legislation and should be generally implemented by the twenty-seven EU Member States in their particular national tax law. In this regard, the manner of the Parent-Subsidiary Directive's implementation into Germany's tax law is critically analysed in the light of European primary law (freedom of establishment). Moreover, the harmful tax effects caused by a potentially incorrect implementation of the Parent-Subsidiary Directive at the level of the German parent company are highlighted against the backdrop of EU law.