On 31 May 2018, the Court of Justice of the European Union (CJEU) issued its decision in the case of: C-382/16 Hornbach-Baumarkt that a parent company’s position as a shareholder of a non-resident company may be taken into account in determining whether there is sufficient commercial justification for a non-arm’s length related-party transaction.
The case deals with German legislation, according to which the income of a German taxpayer resulting from its business relationships with non-resident related companies is adjusted, as far as the relationships are not in line with the arm’s length principle, whereas such adjustment is not made in the case of business relationships between German related companies.
Here, the CJEU judgment generally follows the opinion of the CJEU Advocate General that the German rules are not, in principle, contrary to the freedom of establishment.
