On May 5, the second of six lectures in the series “Future Issues in Tax Law” took place. Professor Daniela Hohenwarter-Mayr compared Austrian and German group taxation rules and examined the European Union's proposals for practical feasibility.
The lecture series “Future Issues in Tax Law” offers younger university lecturers in the field of tax law the opportunity to present topics they consider important and discuss possible developments.
On this evening, Professor Dr. Daniela Hohenwarter-Mayr focused on the future of cross-border group taxation in Europe. Hohenwarter-Mayr holds a professorship in financial law with a focus on international corporate tax law at the University of Vienna. She has been a member of the board of the Institute for Business Law there since 2024 and heads the “Tax Law and Accounting” course.
Based on the core elements of group taxation regulations in Germany and Europe, which Hohenwarter-Mayr sees, among other things, in the overcoming of the subject tax principle in the sense of a legal form-oriented individual taxation, she identified primary law barriers concerning group structure and the territorial scope of profit and loss allocation.
The joint taxation of legally independent companies within a corporate group is a “perennial issue,” said Hohenwarter-Mayr at the beginning of her presentation. It has been occupying the judiciary, the executive branch, and taxpayers since the introduction of the fiscal unity concept at the end of the 20th century.
Fueled by the current turbulent global and economic situation, a discussion about the reform of international corporate taxation is once again heating up. Global instability is forcing Europe to show unity and cohesion—and this also applies to the internal market. Best conditions for all 27 member states to agree on a reform?
National reforms are to be introduced first in Germany – partly following the Austrian model – to enable cross-border group taxation, while at the same time supranational innovations, in line with the proposed EU directive on “BEFIT,” are to bring about pan-European simplification.
Group taxation in Germany – more than just a facelift for fiscal units?
With a knowing smile, Hohenwarter-Mayr remarked that the German fiscal unit was getting on in years and needed a general overhaul. A minor facelift would hardly suffice. The reform proposal for the tax group in the final report of the expert commission on simplifying corporate taxation appointed by the German government in 2023 and headed by Professor Wolfgang Schön is convincing, but it is surprising – from an Austrian perspective – that cross-border group taxation has been rejected, as has the consideration of foreign losses of foreign subsidiaries. The example of Austria shows, on the other hand, that the resulting complexity would be manageable. With a view to making domestic practice more flexible, she agreed with host Wolfgang Schön that it makes more sense to take the first step in practice than to fail at the second step in theory.
“Cross-border group taxation is pushing us to the limits of negative integration. Fundamental freedoms can achieve a lot, but they cannot harmonize,” Hohenwarter-Mayr emphasized that evening. A pan-European solution is needed here.
EU BEFIT Directive under scrutiny – just a temporary solution?
Hohenwarter-Mayr notes that member states are showing strong reluctance with regard to cross-border group taxation. The EU takes a diametrically opposite stance with its 28th Framework Program, which is also intended to cover tax law.
The proposed EU BEFIT directive brings a lot of new elements to the table, but is not conclusive in every detail. Overall, the proposal is an “unconvincing mix” of, among other things, the minimum taxation directive, the old G(K)KB proposals, and influences from member states. According to Hohenwarter-Mayr, the directive in its proposed form does not represent a simplification. In her view, a step-by-step approach is needed: first, a coherent corporate tax base and, second, transparent loss relief. With regard to the corporate tax base, there is the option of linking it to the minimum taxation directive or creating a separate corporate tax base based on the accounting directive.
Professor Hohenwarter-Mayr also sees problems with the European Commission's proposed limitation of the period of validity until 2035, followed by an evaluation. She is uncomfortable with the proposed profit allocation mechanism, which she considers to be only a temporary solution. She raises the question: What happens if agreement on a final allocation formula fails? A temporary arrangement would become permanent, which would not be able to take changes in the tax results of the group entities into account in a meaningful way.
Thinking it through: Compatible? Compliant? Compromise?
Following the presentation, there was a discussion on the extent to which the BEFIT proposal still allows national scope for political steering via tax law. It was also discussed whether the directive in its current form is compatible with civil law and with the freedom of enterprise enshrined in Article 16 of the EU Charter of Fundamental Rights. According to Professor Hohenwarter-Mayr, individual aspects of all reform efforts still need to be “thought through to the end.” Overall, the reform is a compromise—there are still two accounting systems within and outside the territory covered by BEFIT.
Hohenwarter-Mayr rounded off the evening with the statement: “But standing still is not an option either!” This is a clear mandate for politicians to continue developing cross-border corporate taxation at both national and European level and ultimately put it on a stable footing.
May 2025