AG: German reinvestment deferral breaches capital freedom

Advocate General Ćapeta has proposed that Germany's reinvestment tax deferral breaches free movement of capital by shutting out undertakings with no German permanent establishmentEuropaEuropa — while third-country investors remain excluded under the standstill clause. Her Opinion of 15 October 2026Europa in Case C-410/25Europa (Commission v Germany), an infringement action under Article 258 TFEU, proposes that the Court declare Germany in breach of Article 63(1) TFEU and Article 40 of the EEA AgreementEuropa; the Court itself has yet to ruleEuropa.

Paragraph 6b of the Einkommensteuergesetz (Law on Income Tax) lets businesses deduct a capital gain on land, buildings or inland-navigation boats from the cost of a replacement asset — or park it in a reserve for up to six years — deferring tax until the replacement is soldEuropa. But Paragraph 6b(4)(2) conditions the benefit on the sold asset having belonged for six uninterrupted years to a permanent establishment in GermanyEuropa. Non-resident undertakings that merely own German immovable property are taxed on the gain under Paragraph 49(1)(2)(f)Europa yet must pay immediately, with no deferralEuropa. The Court already condemned the mirror condition on the replacement asset (Paragraph 6b(4)(3)) for breaching establishment freedomEuropa in 2015 (C-591/13); Germany's fix — instalment payment over five years under Paragraph 6b(2a) — satisfied the Commission on that limb, and this case pursues the remaining sold-asset condition under capital freedomEuropa.

The Opinion finds a restrictionEuropa: conditioning deferral on a German permanent establishment deters non-residents from investing in German real estate or reinvesting sale proceeds thereEuropa, since residents are statistically likelier to have one. The situations are objectively comparable under Article 65(1)(a) TFEUEuropa — both categories pay German corporate income tax on the German-property gainEuropa, and both need reinvestment flexibility to adapt to structural changeEuropa — so the residence-based distinction cannot escape Article 63(1) on that basisEuropa.

None of Germany's three justifications survivesEuropa. Promoting domestic investment is purely economic and cannot justify a capital restriction; nor does the regime even guarantee continued German activity or target SMEs. Tax coherence fails for want of a direct link: the deferral concerns corporate income tax while the alleged offset — exemption from local trade tax for non-residents — is a different levy, and overall fiscal burden cannot redeem a specific discrimination. And the balanced allocation of taxing powers does not require immediate taxationEuropa: as in the 2015 judgment, Germany keeps its right to tax the German gain but can collect it later, for instance through instalments with safeguards, rather than demanding payment upfrontEuropa.

The Article 64(1) grandfather clause saves the regime only vis-à-vis third countriesEuropa: Paragraph 6b dates from 1964, the Opinion finds it within the scope of that clause, and the Commission does not contest that point — but the clause cannot be invoked against EU/EEA investorsEuropa.

Legal basis: Articles 63(1), 64(1) and 65 TFEU; Article 40 EEA Agreement; Paragraph 6b EStG; AG Opinion of 15 October 2026 in Case C-410/25; judgment of 16 April 2015 in Case C-591/13Europa.