Case law vs. tax authorities and the perennial debate about proof of substance within the meaning of Section 8 (2) AStG

The applicability of the so-called substance test is an important aspect when examining German add-back taxation in tax structuring and tax compliance. While the tax authorities are increasingly examining the substance of foreign companies in detail and critically in the context of add-back taxation, the Cologne and Münster tax courts ruled in favor of the taxpayers. According to POELLATH professionals Raphael Baumgartner and Bianca Disch, the audit standards were appropriate in the cases in dispute and the decisions were well-founded, even though the tax authorities rejected the substance test. In their article, Baumgartner and Disch summarize the facts on which the decisions were based and why the courts decided the way they did.