X GmbH v Finanzamt Stuttgart – Körperschaften

In X GmbH v Finanzamt Stuttgart – Körperschaften (Case C-135/17) (26 February 2019) the CJEU ruled on the impact of standstill provisions and on the extent to which a presumption of artificiality justifies provisions which restrict the free movement of capital.

X a German company held 30% of the shares in Y a Swiss company. In 2005 Y concluded a ‘debt assignment contract’ with Z a German sports rights management company. The debts assigned to Y were owed under contracts under which Z had granted non-repayable subsidies to sports clubs and received ‘profit participation rights’ in return.

The German tax authorities considered that X had received income from the passive activity of Y a controlled foreign company (CFC) so that part of the income derived by Y from the debts purchased from Z was incorporated into the tax base of X.

Under...