The situation
A group structure with low-taxed subsidiaries
A German machine-tool group in Bielefeld owns a Polish company in Katowice, which in turn owns a Cypriot company licensing the group’s software and a trading company in Dubai with three staff. The auditors have asked for the group’s CFC analysis. The last one predates both acquisitions and the latest changes to the German rules.
The question has to be asked twice, once from Germany and once from Poland, and each country has implemented the EU rules its own way. The hours go on applying the control test, the low-tax test and the substance carve-out to each subsidiary, with the right version of the law for each year.
What the research has to settle
The rules behind the answer
- ATAD sets the minimum
- The Anti-Tax Avoidance Directive requires CFC rules for entities more than 50% controlled by the taxpayer and its associated enterprises, where the tax actually paid is less than half of what the home country would charge. Member states may go further, and Germany and Poland both do in places.
- Inside the EU, substance protects
- For subsidiaries in the EU or EEA, CFC rules must not apply where the company carries on a substantive economic activity supported by staff, equipment, assets and premises. This follows Cadbury Schweppes (C-196/04) and is written into ATAD.
- Outside the EU, it may not
- Member states may choose not to apply the substance carve-out to subsidiaries outside the EU and EEA. Whether the Dubai company’s three staff help depends on how German and Polish law use that option.
- The minimum tax changes the arithmetic
- If the group is within the EU minimum tax rules, CFC tax paid by a parent can count toward the subsidiary’s effective tax rate. The CFC check and the minimum tax calculation should be read together.
How it runs in azta
From the question to the document
The question, as you would type it
German parent owns 100% of a Polish sp. z o.o., which owns 100% of a Cypriot IP licensing company and 100% of a Dubai trading company with three employees. Do the German or Polish CFC rules apply to either, and does the substance carve-out help in each case?
You start with
A group structure with low-taxed subsidiaries
- 01
Upload the structure and accounts
Add the group chart and each subsidiary’s financial statements. azta reads them and refers back to the figures it relied on.
File upload· Pro - 02
Test each subsidiary
Ask how the German and Polish CFC rules apply to each subsidiary. azta cites the Directive, both national acts and the Court of Justice.
Cited research· Free - 03
Check the law for each year
Ask about the law at a past date for earlier years, and open each provision in the version then in force.
Atlas statute reader - 04
Write the CFC note
Ask for a note per subsidiary with the tests applied and the result under each country’s rules. Edit it in Canvas for the auditors.
Canvas · Ask azta· Pro You send
A CFC check per subsidiary under each parent country’s rules
What you get
A CFC check per subsidiary under each parent country’s rules
CFC note · draft
CFC analysis: Cypriot and Dubai subsidiaries
Cypriot licensing company. The company is controlled by the group and its effective tax rate is below the threshold under both German and Polish rules. Its income is mainly royalties. As an EU company, it escapes CFC taxation only if it carries on a substantive economic activity. On the facts provided, with one part-time director and no development staff, that is doubtful.
Dubai trading company. The company is controlled and low-taxed. It has three staff and a warehouse. Because it is outside the EU, the substance carve-out applies only if German and Polish law extend it to third countries, which we address in Section 3.
Next step. We recommend confirming the Cypriot company’s activities and staffing before year-end and documenting the Dubai company’s trading functions.
Outcomes on your numbers
What azta is worth on this task
Pro pays for itself after
12 minutes a month
At €140 an hour, that is all the time Pro (€27 a month) has to take off your desk to cover its price.
Example figures. Replace them with your own.
- Hours back a year
- 29
- Capacity at your rate
- €4,032
- More CFC checks a quarter
- 0.8
- Return on Pro
- 12.4×
- Research
- Drafting
- Your review
A scenario you set, not a promise. The hours that come back go to another client, or deeper into this one.
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Book a demoSources azta searches here
- EUR-Lex · Curia
- Gesetze im Internet
- Dziennik Ustaw
- Rechtsprechung im Internet
What stays with you
- The effective tax rate calculations for each subsidiary.
- The facts on staff, premises and decision-making.
- The position in each return and with the auditors.
Frequently asked questions
- Does azta compute the effective tax rate?
- No. It sets out the test and what goes into it, cited. You calculate the rate from the subsidiary’s figures.
- Can it apply the law of an earlier year?
- Yes. Ask about the law at a past date and azta answers from the version then in force.
- Are the uploaded accounts used for training?
- No. Client data is never used for training on any plan and stays in the EU/EEA.
