Tax Group (Organschaft): Dissolution When the Controlling Parent Emigrates and the Tax Consequences

Published on 06.10.2026

Tax Group and the Parent Moving Abroad

Anyone who has integrated a subsidiary GmbH into a German tax group (Organschaft) through a profit and loss transfer agreement and wants to move abroad asks: will the tax group be dissolved when the controlling parent (Organträger) moves away, and what will it cost? The tax group does not end automatically with the move, but it depends on a requirement that is quickly lost on emigration: the shareholding in the controlled company (Organgesellschaft) must be attributable to a German permanent establishment of the controlling parent. If this attribution ceases, the tax group loses its basis. If the agreement is therefore terminated before the end of the five-year minimum term, retroactive corrections may follow. This article covers the legal position as at September 2026 (KStG, GewStG, UStG, Corporate Income Tax Guidelines KStR 2022), the three typical scenarios and legal planning approaches.

In Brief: What a Tax Group Achieves

In an income tax group, the income of a corporation (controlled company) is attributed to its majority shareholder (controlling parent). Profits and losses are thereby offset immediately. The legal bases are Sections 14 and 17 of the German Corporate Income Tax Act (Körperschaftsteuergesetz, KStG) for corporate income tax and Section 2 (2) sentence 2 of the German Trade Tax Act (Gewerbesteuergesetz, GewStG) for trade tax. The VAT group under Section 2 (2) no. 2 of the German VAT Act (Umsatzsteuergesetz, UStG) follows its own rules and does not require a profit and loss transfer agreement.

← Tabelle nach links wischen, um weitere Spalten zu sehen

Under Section 14 (1) sentence 1 no. 2 KStG, the controlling parent can be an individual, a corporation that is not tax-exempt or a partnership that is itself commercially active. Because profits are transferred to a “commercial enterprise”, a private individual holding shares as private assets cannot be a controlling parent.

Does Emigration Automatically End the Tax Group?

No. Since the tax group reform of 2013, unlimited tax liability of the controlling parent is no longer relevant. Sentences 4 to 7 of Section 14 (1) sentence 1 no. 2 KStG are decisive:

• The shareholding in the controlled company must be attributable without interruption, for the entire duration of the tax group, to a German permanent establishment of the controlling parent within the meaning of Section 12 of the German Fiscal Code (AO) (sentence 4). In the case of an indirect shareholding, this applies accordingly to the intermediate company (sentences 4 and 5).
• The income of the controlled company is attributed to this German permanent establishment (sentence 6).
• A German permanent establishment only counts if the income attributable to it is subject to German taxation under domestic law and under the relevant double taxation treaty (sentence 7).

Emigration as such therefore does not end the tax group, but it is the most common reason why the attribution to a permanent establishment fails. When emigration has taken place for tax purposes is determined by the criteria explained in our article on habitual abode in German tax law.

For the attribution of a shareholding to a permanent establishment, Section 7 of the German Ordinance on the Attribution of Profits to Permanent Establishments (Betriebsstättengewinnaufteilungsverordnung, BsGaV) looks at the functional connection with the business activity of the permanent establishment. A shareholding that is only managed from the new place of residence can hardly still be attributed to a German permanent establishment.

The Three Typical Scenarios

An Individual as Controlling Parent

The sole proprietor holds the shares in the controlled company as business assets of their commercial business. If they move away and continue the business through a fixed place of business in Germany with its own staff, they remain subject to limited tax liability on the income of this permanent establishment. If the subsidiary GmbH is functionally connected with this business, for example as a sales or service company, the tax group can continue. If the business is discontinued, sold or relocated abroad, there is no German permanent establishment; the tax group ceases to exist, and exit taxation of business assets (Entstrickung) may follow (see below).

A Partnership as Controlling Parent: A Partner Moves Abroad

If a commercially active partnership is the controlling parent, financial integration must exist in relation to the partnership itself (sentence 3). If a partner moves abroad, the partnership with its German permanent establishment remains the controlling parent, and the tax group generally continues. Sentence 7 must be examined: the partner who has moved away will in future be subject to limited tax liability on their share of profits, and the treaty with their state of residence must leave Germany the right to tax the income of the permanent establishment, which is generally the case with a genuine permanent establishment. A partnership that merely has commercial character by virtue of its structure (gewerblich geprägt) cannot be a controlling parent under sentence 2 in any case.

A Corporation as Controlling Parent: Relocation of the Place of Management

A holding GmbH as controlling parent is initially not affected by its shareholder’s emigration. It becomes delicate if the shareholder-managing director manages it from abroad in future: the place of management (Section 10 AO) can then move abroad, and under the treaty the company can be regarded as resident in the other state despite its registered office in Germany. If no German permanent establishment remains to which the shareholding can be attributed, the tax group ceases, and Section 12 (1) KStG orders exit taxation of the assets concerned at fair market value (gemeiner Wert). The company law issues of such a relocation are covered in our article on relocating a GmbH abroad, and the corporate tax consequences in our article on moving a company’s registered office abroad.

Often Overlooked: The Management of the Controlled Company

Under Section 14 (1) sentence 1 KStG, the controlled company must also have its place of management in Germany. If the controlling parent who has moved away is at the same time the sole managing director of the subsidiary and in future takes the key decisions from abroad, the tax group can already fail at this point, even if the attribution to a permanent establishment at the level of the controlling parent is correct. A managing director working in Germany with genuine powers is therefore more than a formality. For liability issues of a managing director resident abroad, see managing director liability when relocating abroad.

When the Tax Group Ends

The requirements for the tax group must be met for the entire financial year of the controlled company in each case: financial integration “without interruption from the beginning of its financial year” (no. 1), and attribution to a permanent establishment “for the entire duration of the tax group” (no. 2 sentence 4). If the attribution ceases in the middle of the year, according to the wording the attribution of income for the entire current financial year is at risk, not just from the day of the move. In addition, Section 14 (1) sentence 1 no. 3 sentence 3 KStG provides that a termination or cancellation of the profit and loss transfer agreement with effect from a date during the financial year relates back to the beginning of that year. Emigration should therefore, if possible, be timed to coincide with the end of a financial year of the controlled company.

Minimum Term, Good Cause and Retroactive Non-Recognition

The profit and loss transfer agreement must be concluded for at least five years and performed throughout its entire term (Section 14 (1) sentence 1 no. 3 sentence 1 KStG). The tax authorities count in full years (Zeitjahre), not calendar years, from the beginning of the first year of the tax group (R 14.5 (2) KStR). The following applies to termination:

← Tabelle nach links wischen, um weitere Spalten zu sehen

R 14.5 (6) KStR names as good cause in particular the sale or contribution of the shareholding in the controlled company and the merger, division or liquidation of the controlling parent or controlled company. If it was already established when the agreement was concluded that it would end before the end of five years, good cause is not to be assumed under this guideline. The Federal Fiscal Court (Bundesfinanzhof, BFH) has held that early cancellation because, in the parties’ view, the agreement has fulfilled its purpose does not constitute harmless good cause (BFH, judgment of 13 November 2013, I R 45/12). A mere economic deterioration is generally not sufficient either.

The emigration of the controlling parent is not on the list. Whether a move chosen by the taxpayer is recognised as good cause has not been clarified by the supreme courts; relying on it is risky. What can be planned is to let the agreement run for the full five years or to combine the emigration with a recognised reason, such as a sale or contribution of the shareholding that was not yet established when the agreement was concluded. Reorganisations within the tax group carry their own risks, because tax group law and reorganisation tax law are not fully aligned.

Formally, cancellation under Section 296 of the German Stock Corporation Act (AktG) is only permitted with effect from the end of the financial year, while termination for good cause under Section 297 AktG is possible at any time; both require written form. The termination must be registered with the commercial register (Section 298 AktG, applied accordingly for a GmbH). Until the agreement ends, the controlling parent remains obliged to absorb losses (Section 302 AktG).

The safest route: a binding ruling before emigrating. Whether the attribution to a permanent establishment holds after the move, or whether a particular event is recognised as good cause, can be clarified in advance: with an application to the tax office for a binding ruling (verbindliche Auskunft, Section 89 (2) AO). It binds the tax office to the assessment given for a precisely defined set of facts that has not yet been realised. The application must therefore be made before the emigration takes place. In practice, it is often not made because the adviser does not raise it or the client shies away from the fee. As the burden comparison below shows, however, the fee is generally only a fraction of what a retroactively non-recognised tax group costs. In our view, a tax adviser who does not recommend this in such a situation is acting irresponsibly: the client risks having to litigate over the outcome years later, and that costs time and money.

Consequences of a Terminated or Failed Tax Group

If the tax group ends with effect for the future, the controlled company is again assessed to corporate income tax and trade tax itself. If it fails retroactively, the consequences are considerably more serious:

• Hidden profit distributions: Profits already transferred are, according to case law and administrative practice, generally treated as hidden profit distributions. The controlled company may be liable for withholding tax on investment income that was not withheld.
• Hidden contributions: Losses absorbed are treated as hidden contributions by the controlling parent and increase the acquisition costs of the shareholding.
• Subsequent taxation: The previous offsetting of the subsidiary’s losses against the controlling parent’s profits no longer applies. Tax assessments for all affected years are amended, and additional payments bear interest under Section 233a AO.
• Loss carryforwards: Losses of the controlled company from the period before the tax group are blocked during the tax group (Section 15 sentence 1 no. 1 KStG) and become available to it again after the end, limited by minimum taxation under Section 10d of the German Income Tax Act (EStG). The position regarding the emigrated controlling parent’s own loss carryforwards is explained in our article on the loss carryforward on emigration.
• Trade tax: The controlled company is no longer treated as a permanent establishment of the controlling parent (Section 2 (2) sentence 2 GewStG) and becomes independently liable to trade tax.
• Excess and shortfall transfers: Only in the case of an effective tax group that ends for the future does Section 14 (4) KStG continue to apply to transfers caused during the tax group period: shortfall transfers are treated as a contribution, excess transfers as a repayment of contributions. Under Section 14 (4) sentence 5 KStG, income only arises to the extent that the repayment of contributions exceeds the book value of the shareholding plus the contribution. If, on the other hand, the tax group fails retroactively, the rules on hidden profit distributions and hidden contributions set out above apply.

VAT Group: Its Own Standards

The effects of the VAT group are limited to internal supplies between the parts of the business located in Germany. If the controlling parent has its place of management abroad, under Section 2 (2) no. 2 sentence 4 UStG the economically most significant part of the business in Germany is treated as the entrepreneur. Emigration therefore does not necessarily end the VAT group, but it shifts the role of the tax debtor.

It ends as soon as an integration criterion permanently ceases to apply or the controlling parent no longer carries on business, for example if the sole proprietor gives up their business and only holds the shareholding. Supplies and input tax are allocated according to the time of supply, not the invoice date: what the controlled company supplies or receives before the end concerns the controlling parent, and afterwards the company itself. Internal supplies become taxable external supplies; input tax adjustments under Section 15a UStG must be examined.

Relationship with Exit Taxation of Business Assets and Exit Tax

If an individual holds the shareholding in the controlled company as business assets and, after emigration, it can no longer be attributed to a German permanent establishment, this is treated as a withdrawal at fair market value (Section 4 (1) sentences 3 and 4 EStG). The hidden reserves in the GmbH shares are taxed under the partial income method. If the entire business is subject to exit taxation, there is a discontinuation of business under Section 16 (3a) EStG; if the assets are allocated to business assets in another EU or EEA state, the tax can be paid in five annual instalments on application (Section 36 (5) EStG). For individual assets allocated to an EU or EEA state, Section 4g EStG allows a compensation item. Details are set out in our article on exit taxation of business assets.

Classic exit tax under Section 6 of the German Foreign Tax Act (AStG), by contrast, concerns shares within the meaning of Section 17 EStG held as private assets. It becomes relevant if a German holding GmbH stands between the entrepreneur and the controlled company: the tax group between the holding company and the subsidiary can continue, but if the requirements of Section 6 AStG are met, the emigrant’s shares in the holding company are deemed to have been sold at fair market value (payment in instalments over seven years on application, Section 6 (4) AStG). The requirements are explained in our article on exit tax for GmbH shareholdings.

Legal Planning Approaches before Emigrating

Typical starting points, each to be examined in the individual case:

1. Maintain a German permanent establishment with substance. Business premises, staff and decision-makers in Germany with a functional connection to the subsidiary; a letterbox address is not sufficient.
2. Timing. If possible, only emigrate after the five full years (Zeitjahre) have expired and at the end of a financial year of the controlled company.
3. Intermediate holding company. A German holding GmbH as controlling parent makes the tax group independent of the shareholder’s residence. The contribution of the shareholding in the controlled company can be good cause; however, a contribution below fair market value generally triggers seven-year holding periods under Section 22 of the German Reorganisation Tax Act (UmwStG) and does not change any possible exit tax on the shares in the holding company. The limits of this arrangement are shown in our article on setting up a holding structure before emigrating.
4. Secure the management of the controlled company. Appoint a managing director resident in Germany with genuine powers and document decision-making processes.
5. Orderly wind-down. If dissolution is planned anyway, first wind up the subsidiary, then the controlling parent.

If the business is also being passed on to the next generation at the same time, our article on business succession when a shareholder emigrates provides further guidance.

Example: Emigration of a Sole Proprietor with a Tax Group

The persons and figures are fictitious: Thomas runs a machinery trading business as a sole proprietor and holds 100 % of Muster-Service GmbH. The profit and loss transfer agreement has applied since 1 January 2023, and the financial year is the calendar year. In the years 2023 to 2025, he offset losses of the GmbH totalling 240,000 euros against his trading profits.

Option A: Thomas moves to another EU member state with effect from 31 December 2026. The trading business continues with a team in Germany, the GmbH looks after its customers, and a managing director working in Germany runs it. The shareholding remains attributed to the German permanent establishment; the tax group can continue.

Option B: Thomas sells the trading business with effect from 30 June 2026, keeps the GmbH and manages it from abroad. There is no German permanent establishment and no German place of management of the GmbH, and this applies in the current 2026 financial year. If the agreement is now cancelled before the end of 2027 without recognised good cause, retroactive non-recognition from 2023 is threatened: the offsetting of losses of 240,000 euros no longer applies, the losses absorbed are treated as hidden contributions, and the shares may additionally be subject to exit taxation of business assets.

Burden Comparison: Fee for a Binding Ruling versus a Failed Tax Group

A simplified calculation for option B shows what the safeguard costs and what is threatened without it. All figures are example assumptions, not a calculation for a specific case.

Fee for the binding ruling. The tax office charges a fee for processing the application (Section 89 (3) AO). It is based on the value of the ruling for the applicant (value of the matter, Section 89 (4) AO); in practice, this is generally the tax effect of the question to be clarified. The fee is one full fee under the table in Section 34 of the German Court Fees Act (GKG) (Section 89 (5) sentence 1 AO). If the value of the matter is below 10,000 euros, no fee is charged; the value of the matter is capped at 30 million euros (Section 89 (5) sentence 2 AO in conjunction with Section 39 (2) GKG). The fee is also payable if the ruling is not given in the desired sense. The adviser’s fee for preparing the application comes on top.

Tax consequences of a retroactively failed tax group. Assume that Thomas offset the GmbH’s losses of 240,000 euros against trading profits that were subject to a marginal tax rate of around 44 % including solidarity surcharge. If the tax group fails retroactively from 2023, the assessments for 2023 to 2025 must be amended.

← Tabelle nach links wischen, um weitere Spalten zu sehen

In this example, the fee amounts to just over one per cent of the threatened additional burden. Trade tax has been left out of account: with a municipal multiplier of around 400 %, the controlling parent’s additional trade tax is largely credited against income tax via Section 35 EStG; with higher multipliers, a remainder is left. The losses are not lost to the GmbH; they are available to it as its own loss carryforward. However, this only helps if the GmbH makes profits in future, and it does not replace the lost immediate offsetting at the level of the controlling parent. If the controlled company transferred profits during the tax group years, hidden profit distributions and liability for withholding tax on investment income come on top.

Checklist before Emigrating

← Tabelle nach links wischen, um weitere Spalten zu sehen

Conclusion

The emigration of the controlling parent does not automatically dissolve the tax group. What matters is whether the shareholding can still be attributed to a German permanent establishment that Germany may tax under domestic law and under the treaty, and whether the controlled company retains its place of management in Germany. If either is missing, the tax group ends; within the minimum term, early termination of the agreement without good cause threatens retroactive non-recognition. Because exit taxation of business assets or exit tax may arise at the same time, planning should begin before the move. The basics of applying tax treaties are explained in our article on double taxation agreements for emigrants.

Frequently Asked Questions

Does the tax group end automatically if the controlling parent moves abroad?

No. Since 2013, unlimited tax liability of the controlling parent has no longer been a requirement. The tax group does end, however, if the shareholding can no longer be attributed to a German permanent establishment or the controlled company moves its place of management abroad.

Is emigration good cause for early termination?

Emigration is not one of the reasons listed in R 14.5 (6) KStR, and a move chosen by the taxpayer is not readily recognised. Recognised reasons include in particular the sale or contribution of the shareholding in the controlled company, merger, division and liquidation.

What happens to the profit transfers if the tax group fails retroactively?

They are generally treated as hidden profit distributions, and losses absorbed as hidden contributions; the assessments for the affected years are amended.

Is a binding ruling worthwhile before emigrating?

As a rule, yes. The fee is based on the value of the matter and the table in Section 34 GKG (Section 89 (3) to (5) AO); with a tax effect of around 100,000 euros, it is about 1,200 euros. If, on the other hand, the tax group fails retroactively, additional payments for all tax group years plus interest are threatened.

Does the VAT group continue after emigration?

That is possible as long as the integration criteria continue to be met and the controlling parent remains an entrepreneur. If its place of management is abroad, the economically most significant German part of the business is treated as the entrepreneur.

Does a holding GmbH protect the tax group on emigration?

It can make the tax group independent of the shareholder’s residence if the holding company retains its place of management in Germany. However, the shares in the holding company may be subject to exit tax under Section 6 AStG, and a contribution below fair market value generally triggers seven-year holding periods under Section 22 UmwStG.

Attorney Dr. Johannes Fiala and the Munich-based firm, which focuses on tax and corporate law with a cross-border dimension, advise entrepreneurs on planning an emigration with an existing tax group, from examining the attribution to a permanent establishment and the term of the profit and loss transfer agreement to coordination with exit taxation of business assets and exit tax. Dr. Fiala has published extensively on questions of emigration and asset protection. Please get in touch with the firm without obligation to discuss your plans in an initial consultation.