Our Insights
Hornbach-Baumarkt v Finanzamt Landau: German Transfer Pricing Legislation Is Compatible with Freedom of Establishment
The CJEU concluded in Hornbach-Baumarkt v Finanzamt Landau (C-382/16) that German legislation taxing a guarantee given without corresponding consideration for loans incurred by non-resident subsidiaries is not in breach of the freedom of establishment.
Hornbach, a German company, gave its Dutch subsidiaries a guarantee for their loans, but did not charge them any consideration. The German tax authorities took the view that unrelated third parties would have agreed on remuneration for the guarantees, and decided to increase the income of Hornbach by the presumed remuneration amount and tax it accordingly.
The CJEU held that this approach was a restriction on the freedom of establishment as the deemed profit increase and corresponding tax charge would not have been applied if the loan guarantee had been given for a German company. However, the CJEU further held that this restriction was justified based on the need to maintain the balanced allocation of power to tax between Member States. Allowing companies resident in a Member State to transfer their profits (in the form of unusual or gratuitous advantages) to companies in other Member States and with which they had a relationship of interdependence may undermine such balanced allocation. This was the case in the present scenario, and the German legislation permitted the exercise of the power to tax. Nonetheless, the CJEU noted there was potentially a commercial justification in the present case for granting a guarantee gratuitously, since Hornbach was a shareholder in the Dutch borrowers. The CJEU added that it was for the referring court to determine whether Hornbach could provide a satisfactory commercial justification for the gratuitous guarantee.
This article appears in the JHA June 2018 Tax Newsletter, which also features:
- Fidelity Funds: Danish Withholding Tax on Dividends Breaches EU Law
- A/S Bevola Applies Marks & Spencer to the Losses of a Foreign Permanent Establishment


Our Insights

Case note: Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners [2022] UKFTT 00224 (TC)
As HMRC continue to apply the Kittel principle to increasing numbers of industries and businesses, taxpayers need to be vigilant about evidential requirements that HMRC must fulfil in order to discharge their burden of proof. Read JHA’s latest insight into the First-tier Tribunal’s decision in Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners [2022] UKFTT 00224 (TC).
If you require any further information about the Kittel, Mecsek, and Ablessio principles, or any other allegations by HMRC of fraud or fraudulent abuse, please contact Iain MacWhannell (imw@jha.com).

The Kittel Principle - Sweet Sixteen
The following is an article written by David Bedenham about HMRC’s wide-ranging application of the ‘Kittel principle’. The current focus appears to very much be on the labour supply industry and the allegation of ‘Mini Umbrella Company Fraud’ (or ‘MUC Fraud’). This article highlights the need for taxpayers to get specialist advice at an early stage when faced with a Kittel decision. If you have any queries about Kittel-related issues or similar denials of input VAT or assessments to VAT, please contact Iain MacWhannell (imw@jha.com).
