The German CFC Rules after the Federal Fiscal Court Decision of 11 March 2015: A Toothless Tiger?

Abstract:

The groundbreaking ruling by the German Federal Fiscal Court dated 11 March 2015 significantly reduced the legal consequences of the German CFC rules, as income that is taxed under the CFC rules is now no longer subject to German trade tax. Especially for German corporate shareholders in CFCs, this reduces the tax burden by about 50%. This, in connection with the favourable taxation of dividends under the German CFC regime, has a tremendous impact on international tax planning from a German perspective. It leads to the question if even offshore investments triggering the German CFC regime are now being preferable to German domestic investment structures. Given this background, the following article revisits opportunities and challenges from a German tax planning perspective.