Arbitration MAP cut needs hidden distribution to cut tax, BFH rules

A mutual agreement under the EU Arbitration Convention does not by itself cut German corporation tax.Bundesfinanzhof The I. Senat of the Bundesfinanzhof heldBundesfinanzhof on 2 September 2026Bundesfinanzhof, I R 39/23Bundesfinanzhof, that neither the Schiedsübereinkommen 90/436/EWG, nor agreements under it, nor § 175a AO has substantive effect that could lower Körperschaftsteuer income detached from national computation rulesBundesfinanzhof. A downward transfer-pricing adjustment for a domestic parent reduces profit only if the gap is a verdeckte Gewinnausschüttung by the subsidiariesBundesfinanzhof, hence tax-exempt income under § 8b Abs. 1 Satz 1 KStGBundesfinanzhof with 5% deemed non-deductible under § 8b Abs. 5 Satz 1 KStGBundesfinanzhof.

The plaintiff AG indirectly held 100% of three foreign corporations in states X, Y and Z and ran three arbitration proceedings for 2008. A 2009 audit for 2000 to 2003 found supply prices too low; the spread was treated as a verdeckte Einlage, with corrected returns under § 153 AO for 2004 to 2007, creating double taxation abroad. The states agreed profit and margin allocations that left German profit unchanged or higher for 2000 to 2007 while lowering the subsidiaries' profits, and in 2014 extended the method to 2008, where the reverse arose: the subsidiaries' actual-price profits were too low and the parent's too high. The 19 June 2017 notices cut 2008 profit accordingly, kept Körperschaftsteuer at EUR 0, but added back 5% of each cut under § 8b Abs. 5 KStG for the 31 December 2008 loss carryforward. Objections, decisions of 30 September and 31 October 2019, and the Finanzgericht München suits of 22 May 2023, 7 K 2545/19, failed. The revision was procedurally well-founded only because a 9 July 2025 amending notice became the subject matter under § 68 in conjunction with § 127 FGOBundesfinanzhof, so the prior judgment was set aside in that scopeBundesfinanzhof and the claim dismissedBundesfinanzhof.

A verdeckte Gewinnausschüttung under § 8 Abs. 3 Satz 2 KStG needs a company-law-driven diminution affecting the § 4 Abs. 1 Satz 1 EStG difference, denied to a non-shareholder by a prudent manager, and capable of § 20 Abs. 1 Nr. 1 Satz 2 EStG incomeBundesfinanzhof. Whether prices deviate from arm's length, and within which range, is fact for the FinanzgerichtBundesfinanzhof, using the taxpayer-friendliest comparable where a range exists. If the MAP cuts equal the excess over the arm's-length range, the reduction follows under national law because the amounts are requalified outside the balance sheet into tax-exempt Beteiligungsertrag under § 8b Abs. 1 KStG. The flat 5% then applies as a typified secondary correction akin to § 3c Abs. 1 EStGBundesfinanzhof that does not defeat MAP reliefBundesfinanzhof.

If no verdeckte Gewinnausschüttung exists, there is no exemption and no 5% charge — but also no domestic basis for any cutBundesfinanzhof. Art. 4 SchÜ, like Art. 9 Abs. 1 OECD-Musterabkommen, only permits taxing higher arm's-length profits and leaves implementation to national lawBundesfinanzhof. A Verständigungsvereinbarung is a Verwaltungsabkommen under Art. 59 Abs. 2 Satz 2 GG, not statuteBundesfinanzhof, and cannot supply a preference under Art. 20 Abs. 3 GG and § 85 Satz 1 AOBundesfinanzhof. § 175a AO only reopens bestandskraft procedurallyBundesfinanzhof. By the Verböserungsverbot the 95% relief already granted standsBundesfinanzhof. No Art. 267 Abs. 3 AEUV reference was made on Art. 14 Buchst. a SchÜ: the Convention is a multilateral treaty, not Union law, so the Court of Justice lacks jurisdiction.

Legal basis is § 8 Abs. 3 Satz 2, § 8b Abs. 1 Satz 1 and Abs. 5 Satz 1 KStG (VZ 2008), Art. 4 to 7, 12 and 14 SchÜ 90/436/EWG and § 175a AO as applied in BFH judgment I R 39/23 of 2 September 2026.