12. May 2017

German rules on limitation of tax loss carry-forwards for corporations are unconstitutional

The German Federal Constitutional Court has announced it’s decision that the German rules on limitation of tax loss carry-forwards for corporations are unconstitutional.

In it’s press release No. 34/2017 of 12 May 2017 the Federal Constitutional Court announced that the German tax loss carry-forward rule in § 8c sentence 1 German Corporate Income Tax Act (CIT) in it’s version between 2008 and 2015 is incompatible with the German general principle of equal treatment (Art. 3 (1) German Basic Law). This rule stipulates that, a corporation losses it’s loss carry-forward if and to the extent, that within five years between >25% and <50% of the shares in the company are transferred (so called harmful acquisition of shares). The Court is of the opinion that the rule is lacking a justified reason for the differentiation between an harmful acquisition of shares within the threshold (50%>25%) and other acquisitions of shares below the treshold. The German legislator is now forced to issue retroactive rules for the time period between 2008 and 2015.