Recent Developments in the German Tax Treatment of CFCs

This note describes the tax treatment of controlled foreign companies (CFCs) under German tax legislation and case law. In a recent decision of the German Federal Tax Court, the taxpayer was not required to pay trade tax on CFC income, thus altering the tax consequences of CFC income significantly. This decision has aligned the German tax treatment of CFCs with that of foreign permanent establishments, the income of which is also not subject to trade tax.