In its decisions of December 18th, 2024, concerning the cases I R 45/22 and I R 49/23, the German Federal Fiscal Court (BFH) examined scope and functioning of Section 1(5) of the German Foreign Tax Act (dAStG) and the corresponding Ordinance on the Attribution of Profits to Permanent Establishments (BsGaV). In case I R 45/22, the court dealt with a Hungarian limited liability company that had an installation permanent establishment in Germany. Case I R 49/23 dealt with the profit determination of a German fixed place of business of another Hungarian resident company. In both cases, the plaintiffs determined the profits based on accounts in accordance with German profit determination regulations. This approach was rejected by the German tax authorities on the basis of Section 1(5) dAStG and the BsGaV that requires the application of the cost-plus method to compute profits of a permanent establishment carrying out routine activities only. In both cases, the court held that the provisions of Section 1(5) dAStG and the BsGaV are not a legal basis to determine the profits of the foreign entity’s German permanent establishment but are regulations to adjust income. Stefan Bendlinger analyzes the German court’s decisions as well as possible consequences for Austrian companies maintaining permanent establishments in Germany.
