Disentanglement of permanent establishment abroad: Federal Fiscal Court confirms retroactive tax liability
- Patricia Lederer
- Aug 5
- 2 min read
Why the plaintiffs still won the court case
Frankfurt am Main
August 5, 2025
Federal Fiscal Court confirms taxation when transferring assets abroad - as disentanglement of permanent establishment abroad
According to the Federal Fiscal Court, retroactive tax liability when assets are relocated to foreign permanent establishments is constitutional – but the plaintiffs still win.
In its ruling of March 26, 2025 (case no. IR 5/24), the Federal Fiscal Court (BFH) ruled that retroactive disentanglement taxation upon the transfer of assets to a foreign permanent establishment is constitutional . The court thus strengthens the legal position of the tax authorities and confirms that companies can also be subject to tax retroactively upon relocation abroad .
What does disentanglement mean?
In a process known as disentanglement, assets (e.g., trademark rights, patents, machinery) are released from German taxation – for example, by transferring them to a foreign permanent establishment. For tax purposes, this is considered a notional withdrawal . The consequence: The hidden reserves contained therein must be taxed in Germany.
The case: Transfer to the Netherlands
In the underlying case, a Dutch group of companies transferred trademark and patent rights to a permanent establishment in the Netherlands in 2005. The tax authorities considered this a taxable disentanglement, even though the legal basis was not established until 2010.
The plaintiffs argued that a retroactive application of the disentanglement rule for foreign tax purposes violated the constitutional protection of legitimate expectations.
But the BFH made it clear:
The retroactive disentanglement rule is permissible because the companies could not rely on tax-free treatment due to the legal uncertainty at the time .
Why the plaintiffs won anyway
Nevertheless, the plaintiffs prevailed before the Federal Fiscal Court (BFH) – albeit for a different reason: The tax court had incorrectly applied the arm's length value when valuing the transferred rights. The BFH ruled that the partial value – a generally lower value – had still been relevant in 2005. The case was therefore remanded to the tax court for a new calculation .
Important: Due to the prohibition of aggravation, the new ruling must not lead to a higher tax burden .
Implications for practice
Entrepreneurs with international ties should carefully examine whether the transfer of trademarks, patents, or other assets abroad triggers disentanglement taxation . This is particularly necessary in the case of legacy structures or retroactive measures.
Alternatives such as licensing models , domestic German holdings or timely binding information can help to avoid unnecessary tax burdens.
Conclusion
The Federal Fiscal Court makes it clear: The transfer of assets abroad remains subject to tax risks – even many years later. Anyone planning cross-border transactions should act with foresight and ensure proper documentation in terms of tax law .
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