Additional restriction on loss deduction for corporations
There is, however, an additional restriction on loss deduction
for corporations. Changes in the ownership of corporations can
cause forfeiture of losses for tax purposes under the so-called
change-of-control rules. The restriction proceeds in two steps.
Acquisitions of more than 25% and up to 50% of a corporation’s
shares or voting rights within a fve-year period by a person or
parties related thereto triggers pro rata forfeiture of losses.
The forfeiture of losses is total when more than 50% of the shares
or voting rights are transferred. The statute covers both direct
and indirect transfers. The rules also operate when shares are
transferred to a group of purchasers with convergent interests.
The change-of-control rules were introduced into German tax law
with effect from 2008 and apply to transfers of shares on or after
1 January 2008.
A detrimental change in ownership does not exist if 100% of
the shares in the transferee and transferor are held directly or
indirectly by the same person (top management of the group)
(so-called group exemption provision). By the 2015 Tax Amend-
ment Act, the group exemption provision was extended to group
internal acquisitions with participation of the group’s parent
company (top management). In addition, individuals, legal enti-
ties, as well as commercial partnerships can be regarded as the
top management of the group. In addition, the rules provide that
unused tax losses of a corporation are not forfeited upon a share
transfer up to the amount of hidden reserves taxable in Germany
of the corporation’s fully taxable business property.
EU Forecast
euf:ba.18g:31/nws-01