Section 2a(1)(2) of the Income Tax Act (EStG): Application to Commercial Partnerships – New Developments in Administrative Practice

The application of Section 2a(1)(2) of the German Income Tax Act (EStG) is currently gaining practical significance. Tax authorities are increasingly taking the view that the prohibition on offsetting losses—which applies to commercial permanent establishments in third countries—should also apply to commercial partnerships.

• This view deviates from previous advisory practice and the prevailing opinion in the literature, which requires an inherently commercial activity. 
• Particularly noteworthy: A case before the Hessian Fiscal Court (11 K 1357/23) could set a precedent here.

What does this mean in practice?
Anyone who receives assessment notices that follow this new administrative practice should act now—file an objection and keep the proceedings open until the matter is clarified in court.

Raphael Baumgartner and Cindy Slominska have summarized the tax administration’s arguments and the opposing view in the literature in this article.