On 8 January 2007, the Federal Ministry of Finance issued a circular clarifying the application of German CFC rules to pending cases. The circular is a reaction to the ruling of the European Court of Justice in the case Cadburry-Schweppes (C-196/04).
The circular establishes that in conformity with EU law, no CFC taxation may be applied if the taxpayer proves that the CFC performs real economic activities in the low-tax country. Such proof must entail…