Profit And Loss Pooling Agreement Germany

When a parent company holds more than 50% of the voting rights in a subsidiary established in Germany, these two companies can enter into a formal profit and loss pool (PLPA) contract, which must be concluded for a period of at least five years. If certain conditions are met, the resulting relationship is called an organ. The annual results of an organ are actually grouped at the parent level. The subsidiary of the tax group itself is subject to only 20/17 of the compensation paid to external minority shareholders, if any. Profits and losses within a group can therefore be offset, but there is no provision for the elimination of intra-group profits across the entire taxable base. It should also be noted that negative income collected by the parent company or subsidiary within an organization is excluded from compensation in the same year or another year if a foreign country takes this into account for the taxation of a member of the organization or other organization. The contracting parties take note of certain old German profit and loss transfer agreements (“PLTA”). In accordance with the Federal Ministry of Finance circular of April 3, 2019, the PLTA must be amended by December 31, 2019 with controlled SARLs (“SARL”) to ensure that an existing income tax group will continue to be recognized in the future. In accordance with the grandfather rule, which was associated with the amendment to the law, the revised requirement for the recognition of a consolidated tax group is mandatory for all PLPPs completed or amended after February 26, 2013; However, there is no need to change the PPPs completed before that date. However, if the determination of the absorption of losses in a PLPA before 23 February 2013 did not comply with the drafting requirements of the previous law, the defect can be corrected by: the PLPA must contain the appropriate text for the agreement to be valid; The non-use of this formulation could lead to the cancellation of tax consolidation, so that companies that are part of the PLPA could be taxed on an autonomous and unconsolidated basis. Prior to February 26, 2013, a PLPA was to include a provision for loss absorption, in accordance with section 302 of the Shares Act.

In accordance with the amended rules applicable from that date, the PLPA must include a loss absorption provision, which specifically refers to the current version of Section 302, as amended from time to time. The PLTTs concerned include those that were closed before 1 January 2006 and do not contain references to the provisions of Article 302, paragraph 4, of the Act of 9 December 2004. These references could be formulations such as “Loss management is carried out in accordance with “. 302, paragraph

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