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Tax Connect Flash | Germany: European Commission demands change of roll-over relief rules


The European Commission formally requested Germany to amend its roll-over relief rules, which discriminate against certain cross-border operations. This request came in the form of a ‘reasoned opinion’ that was issued on 29 September 2011. This means that if the German government fails to change the relevant rules in line with the Commission’s expectations, it may refer Germany to the Court of Justice of the European Union.


Under the current German legislation, capital gains realised from the sale of fixed assets may be ‘rolled-over’ to reinvestments into new assets, if both the sold and the newly purchased assets belong to a German permanent establishment. As such, these capital gains are not immediately taxed. Instead, they are either directly used to decrease the book value of the new asset within the same year, or that of a substitute asset that is purchased within the next four years. This is known as a “roll-over relief”.

If, however, the reinvestments are made into new assets that form part of a foreign permanent establishment, the capital gains are taxed immediately.
What was pointed out by German tax experts a long time ago has finally been picked up by the Commission: the roll-over relief rule is likely to prevent taxpayers from investing in other Member States and it therefore infringes the freedom of establishment.

Many other cases against Germany

This is however just the latest of a series of cases where the European Commission has requested that Germany amend its tax rules: in 2010, the Commission started formal treaty violation proceedings in relation to the German anti-treaty shopping rules, which deny the refund of a German withholding tax where foreign intermediary companies are involved; in 2011, the Commission delivered a reasoned opinion with regard to the German “restructuring clause” which was deemed unlawful state aid in cases where losses carried forward could be saved regardless of a qualified transfer of shares. Yet, there is still a long list of German tax rules which are likely to be challenged by the European Commission in the future.

Relevant legislation: Article 6b of German ITA, Article 258 TFEU


Dr. Wolf-Georg Freiherr von Rechenberg