On 26 January 2011, the European Commission ruled that the financial restructuring exception in the German change-in-ownership rule constitutes incompatible state aid. The financial restructuring exception, which allows ailing companies to keep their loss carryforwards even if there is a harmful change in ownership, was introduced in mid-2009 (applying retroactively to changes in ownership as from 1 January 2008), without being notified to the Commission. Accordingly, the measure was considered unlawful aid and the Commission has ordered Germany to recover all aid granted under the financial restructuring exception since it came into effect (see Deloitte Tax-News).
On 9 March 2011, the German government announced in a press release that it intends to bring an application for an action for annulment of the Commission’s decision before the European General Court (Court of First Instance – CFI) on the grounds that the financial restructuring exception does not confer a selective advantage and thus does not constitute state aid. If the government is successful in its application, the exception could again apply to fiscal years 2008-2010. However, until the CFI issues a final decision in this case, all tax advantages granted under the financial restructuring exception have to be recovered, because the annulment action does not suspend the effect of the European Commission’s decision. The Federal Ministry of Finance has announced that it is preparing guidance that will clarify how recovery of the advantages will be effected under German procedural rules.
Taxpayers that have made use of the financial restructuring exception should carefully analyze their procedural situations to ensure they will be able to benefit from a potentially successful outcome of the action for annulment. Taxpayers will not be able to present arguments in the case, because companies and similar parties do not have the right to intervene in such proceedings even if they can establish an interest in the results of the case. However, any company that is directly and individually affected by the decision of the Commission, e.g. because the company made use of the financial restructuring exception in the past, should have the right to bring an action for annulment before the CFI. A careful analysis is necessary, however, to determine whether this action would be sensible.
If you have any questions, please contact the authors of the article at gtln@deloitte.de or your regular Deloitte contact.
