From Germany: Loss Deduction for Incorporated Companies

Alessio Rossi - Alegis, a Member Firm of Andersen Global

Loss deduction for incorporated companies as per § 8c part 1 CIT[German Corporate Income Tax Act] (now § 8c Sec. 1 part 1 CIT) incompatible with the Basic Law [German constitution]

Press release by German Federal Constitutional Court (no. 34/2017) dated May 12, 2017.

The provision in § 8c part 1 CIT, according to which the loss deduction of an incorporated company ceases proportionally, if more than 25% and up to 50% of the shares are transferred within five years (detrimental acquisition of shares), is not compatible with the general principle of equality of treatment (article 3 Sec. 1 GG [German constitution]). The same applies to the identically worded provision in § 8c Sec. 1 part 1 CIT in its version valid until December 31, 2015. The Second Panel of the Bundesverfassungsgericht [German Federal Constitutional Court] decided this in a ruling published on May 12, 2017. An objectively plausible reason is lacking for the unequal treatment of incorporated companies in the determination of their taxable incomes in the event of a so-called detrimental acquisition of shares. The legislature must pass new legislation by December 31, 2018, which is retrospective for the period from January 1, 2008 to December 31, 2015.

Please contact us discussing possible tax impacts for your companies and how to react for all open years, especially on the tax filings for open years.

For more details about the new court ruling please contact Alessio Rossi from Alegis.