An overview from Flick Gocke Schaumburg, Taxand Germany
Germany’s Federal Tax Court (BFH) has ruled that interest payments linked to a Dutch group structure can be disallowed as a tax deduction in Germany under Section 4i EStG. The case involved financing between companies within a Dutch tax group, where funds were ultimately used to support a German partnership.
The court took a broad approach to the rules, deciding that a deduction can be denied if an expense reduces taxable profits in both countries, even if different entities benefit from the tax treatment. The BFH focused on the overall economic effect of the arrangement rather than the technical details of how the deduction arises under Dutch tax law.
The decision is an important reminder for multinational groups with cross-border financing arrangements. It suggests that Germany may apply Section 4i EStG more widely than previously expected, potentially restricting interest deductions where expenses provide a tax benefit in more than one jurisdiction. Businesses with German and Dutch group structures may therefore wish to review existing financing arrangements.
Dr. Christian Heider from our German member firm, Flick Gocke Schaumburg, provides a detailed overview of the new rules, which you can read here.