The Federal Fiscal Court once again addresses the requirements for the actual implementation of a profit transfer agreement

In its ruling of November 2, 2022 (I R 37/19), the Federal Fiscal Court (BFH) had already addressed the requirements for the actual implementation of a profit transfer agreement under Section 14(1), sentence 1, no. 3, sentence 1 of the Corporation Tax Act (KStG). In that decision, it clarified that the actual implementation of the profit transfer not only requires the fulfillment of all claims and liabilities arising from the profit transfer agreement but also necessitates the recording and reporting of the resulting claims and liabilities in the annual financial statements. Building on this case law, the BFH once again addressed the actual implementation of the profit transfer agreement in its ruling of November 5, 2025 (I R 37/22). Confirming its ruling of November 2, 2022, the Court this time focused on the temporal aspect of actual implementation, namely the question of what constitutes a timely fulfillment of the claims arising from the profit transfer agreement.

Temporal aspect of actual performance: What does “promptly” mean?

In its ruling, the BFH emphasizes that the attribution of income to another taxpayer based on a corporate tax group constitutes an exception to the principle of taxation at the level of the respective corporate entity. In this respect, such attribution is permissible only under the strict, partly formal requirements of Sections 14 and 17 of the KStG. The legislature’s aim in formulating these requirements was to prevent manipulation and the arbitrary “activation and deactivation of tax groups.” This objective must be taken into account through strict adherence to the requirements and, if necessary, interpretation.

The BFH clarifies in this regard that, in the case at hand, the profit transfer agreement was not executed, as the claims for the transfer of the generated profits had not been settled until several years after their due date and thus not been fulfilled in a timely manner. The Court acknowledges that the temporal requirements for the fulfillment of claims arising from the profit transfer agreement had not previously been ruled on by the highest court. To explain the possible temporal reference points, the Court refers to three opinions frequently expressed in the literature regarding the “timeliness” of the fulfillment of the claims:

• satisfaction of the obligations at the time of termination or within a reasonable period after the termination of the tax group,
• satisfaction immediately upon maturity, or at the very latest with only a slight delay, and
• satisfaction within a reasonable period after the adoption of the annual financial statements or after maturity.

The twelve-month period as a guideline for the timely transfer of profits

In the Senate’s view, the latter opinion should be followed, as it is not sufficient for the claims arising from the profit transfer agreement to be satisfied at some point or, at the latest, upon termination of the tax consolidation group. The Court considers the fulfillment of the obligation only after the termination of the tax group to be excluded merely on the basis of the wording of Section 14(1), sentence 1, no. 3, sentence 1 KStG, which states “during its entire term of validity.” Furthermore, this would give taxpayers the opportunity to decide, up until the end of the tax group, for or against the implementation of the agreement and thus also for or against the tax group itself. Rather, with regard to the element of the profit transfer agreement’s implementation, timely fulfillment of the claims due under civil law is required, whereby the Court generally considers fulfillment to be sufficient within twelve months of the due date.

Accepted methods of fulfillment for profit transfers

In addition to the timing issue, the BFH also addresses which methods of fulfillment are considered sufficient for the actual execution of profit transfers. In addition to direct payment, the BFH considers settlement via a “genuine” clearing account, as well as the conversion of accumulated claims through the closing of accounts into an abstract acknowledgment of debt or a loan, to be sufficient. Posting to a “non-genuine” clearing account, on the other hand, is not sufficient.

Case law on exceptions to the rule remains pending

The Court did not need to decide whether, and to what extent, minor irregularities in the performance of the contract might be deemed harmless on grounds of proportionality, as the 12-month period had long since expired. For the same reason, no decision was made regarding the conditions under which a profit transfer agreement is deemed to have been performed if, due to special circumstances, there are delays in the maturity of the claims.

Practical guidance

The ruling will have a significant impact on current practice. The BFH has now established clear guidelines regarding the deadline by which claims under a profit transfer agreement must generally be fulfilled. Companies involved in a profit transfer agreement should therefore keep these deadlines in mind to avoid negative consequences during the next tax audit. Additionally, outstanding issues from the past should be reviewed.