The European Commission has formally requested Germany to amend its tax legislation on hidden reserves which in the Commission's view discriminate against certain cross border operations.

Under current German legislation, a “transfer” of hidden reserves on reinvestments is only possible if the newly purchased assets belong to a permanent establishment in Germany. A hidden reserve is a resource that is not listed on a balance sheet, such as land or building shown at a value less than its market value. In the Commission's view, a taxpayer wishing to sell his fixed assets to establish himself in another EU Member State, Iceland, Liechtenstein or Norway will be at a disadvantage because he does not invest in a German permanent establishment.

The Commission's request to modify the German rules is the second step of EU infringement proceedings. If Germany does not notify the Commission within two months of measures taken to put an end to the infringement of EU law, the Commission may refer Germany to the EU's Court of Justice.