European Commission Refers Germany to Court of Justice Over Discriminatory Tax Treatment

| Image Credits: German property for sale

The European Commission has decided to refer Germany (Case INFR(2012)4037) to the Court of Justice of the European Union (CJEU) for failing to address discriminatory tax practices related to reinvested capital gains from the sale of German real estate. This measure follows Germany's non-compliance with the free movement of capital provisions outlined in Article 63 of the Treaty on the Functioning of the European Union (TFEU) and Article 40 of the European Economic Area (EEA) Agreement.

Germany’s current legislation allows for tax deferral on capital gains reinvested from the sale of real estate within the country, but only if the property was part of the fixed assets of a domestic permanent establishment for at least six uninterrupted years. German corporations, even without domestic business operations, are automatically considered to have such permanent establishments at their places of management in Germany. However, similar corporations based in other EU or EEA Member States are not granted the same status. This exclusion effectively denies them the tax deferral benefits, creating a discriminatory barrier to the free movement of capital.

In November 2019, the Commission issued a reasoned opinion urging Germany to rectify this infringement. Subsequent technical discussions with German authorities have not yielded satisfactory outcomes. As a result, the Commission has decided to escalate the matter to the CJEU to ensure compliance with EU law.

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