Germany's Federal Constitutional Court rules change-in-ownership rules partially unconstitutional
Global Tax Update: July 2017 / Germany
In a taxpayer-favorable decision issued on 29 March 2017 and published on 12 May 2017, Germany’s Federal Constitutional Court held that the change-in-ownership rules relating to loss carryforwards partially infringe the German constitution, and must be amended with retroactive effect. (Global Tax Update : July 2017/Germany)
The taxpayer in the case initiated the proceedings in 2011 (see GTLN dated 27 May 2011).
Under the change-in-ownership rules, net operating loss carryforwards, interest carryforwards and current year losses are forfeited if there is a “harmful change in ownership” A direct or an indirect transfer of more than 25% (and up to 50%) of the shares in a company that has loss carryforwards results in a pro rata forfeiture of the carryforwards, and a share transfer of more than 50% results in a complete forfeiture of all available tax loss carryforwards. There are three exceptions to the loss forfeiture rules: (i) the intragroup restructuring exception; (ii) the built-in-gains exception (both applicable as from 2010); or (iii) the business continuation clause (applicable as from 2016).