Online message – Monday, April 15, 2024
Foreign Tax Act | Proof of actual economic activity within the meaning of Section 8 Paragraph 2 AStG (FG)
The FG Münster has dealt with the requirements for proof of actual economic activity within the meaning of Section 8 Paragraph 2 AStG (FG Münster, judgment of February 6, 2024 – 2 K 842/19 F; NZB pending, BFH-Az. IX B 35/24).
facts: The plaintiff is a corporation which, during the years in dispute, held 99.995% of the shares in a corporation under Belgian law with its registered office in Belgium (hereinafter NV). After being founded in 1982, the NV acted as the holding and management company of its group of companies and held both foreign and domestic shareholdings. The NV’s business activities included the granting of loans to the operating shareholders of its group of companies and third parties, the divestment of shareholdings to promote the corporate purpose of the group of companies and the purchase of shareholdings. To carry out its business activities in Belgium, the NV rented a room of around 15-20 square meters and had its own telephone and fax connections as well as email addresses and office equipment. The NV’s business was managed by four board members – one Belgian and three German. During the years in dispute, the NV earned interest income, income from the provision of consulting services and income from financial investments. Due to the peculiarities of Belgian tax law, no income tax was assessed against the NV in the years in dispute.
As part of an audit, the tax office for large and group business audits came to the conclusion that the interest income generated by the NV was to be taxed by the plaintiff as interim income by way of addition taxation. The plaintiff, however, was of the opinion that there was no case of additional taxation.
The 2nd Senate of the FG Münster upheld the lawsuit:
The requirements of Section 8 Paragraph 1 AStG are met. The NV generated income that was subject to low taxation in Belgium. In addition, the income does not come from an (active) (exclusionary) activity mentioned in Section 8 Paragraph 1 AStG.
When examining the exclusions of Section 8 Paragraph 1 AStG, from a functional perspective, it must be assumed that the NV’s (holding) activity is to be assessed uniformly, since there was a close economic connection between the NV’s various activities. This holding activity is not covered by the finally listed (active) activities within the meaning of Section 8 Paragraph 1 Nos. 1-9 AStG.
However, even if the NV’s activities are segmented into holding, lending, advisory and sales activities, the exclusions of Section 8 Paragraph 1 Nos. 5, 7 and 9 AStG are not met with regard to the disputed interest income.
However, the plaintiff has succeeded in providing proof in accordance with Section 8 Paragraph 2 AStG. According to this, a company that has its registered office or its management in a member state of the European Union is not an intermediate company for income for which it can be proven that the company carries out an actual economic activity in this state.
With regard to the requirements for actual economic activity – which are not defined in the law – as shown in the explanatory memorandum of the law (BT printing 16/6290, p. 92) based on the ECJ’s comments in case C-196/04 (Cadbury Schweppes), the following criteria are relevant:
stable and continuous participation in the economic life of another member state,
an actual exercise of an economic activity by means of a fixed establishment in the other member state for an indefinite period of time and
the determination of these requirements on the basis of objective evidence that can be verified by third parties.
Participation in economic life can also take place with an affiliated company.
Taking into account the overall circumstances of the individual case, the NV participated actively, constantly and sustainably in economic life in Belgium during the years in dispute within the framework of its capacity as a holding and management company, had appropriately qualified staff and suitable business premises and thus sufficient economic “substance” and its Income generated from own (holding) activities.
Contrary to the FA’s opinion, it is not necessary that the NV (also) participated in the sales market in Belgium. The exchange of services between the foreign company and the market of its host member state is not limited to the local sales market.
Rather, it is sufficient if the foreign company simply turns to the procurement market, for example – as is the case with NV – by renting the permanent business facility. This follows from the meaning and purpose of freedom of establishment.
It is also not clear to the Senate that the NV’s activities are a purely artificial mailbox or purely artificial design that is devoid of any economic reality. Although the scope of activities has changed over the years, the content of the activities has remained comparable since the NV was founded.
A notice:
The non-admission complaint is pending at the BFH under case number IX B 35/24. The full text of the decision is in the
Case law database of the state of North Rhine-Westphalia
published.
Those: FG Münster, Newsletter
April 2024 (il)
Location(s):
NWB JAAAJ-64963