Under the German change-in-ownership rules applicable as from 1 January 2008, a direct or indirect share 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 those carryforwards. A share transfer of more than 50% will result in the forfeiture of all of the available tax loss carryforwards. Where a corporate taxpayer generated profits in the year in which the change in ownership took place but incurred tax losses in the past, a question arose as to whether the losses could be offset against the positive income generated until the change in ownership or whether the entire loss would be forfeited.
A decree issued by the Federal Ministry of Finance (BMF) on 4 July 2008 provides that a loss offset is not allowed (although in the inverse case, losses incurred until the change in ownership takes place would be forfeited as well). In contrast to the position of the BMF, the Lower Tax Court of Münster ruled in a recently published decision (case reference: 9 K 1842/10 K) that tax losses may be offset against the income generated until the harmful share transfer. According to the court, the change-in-ownership rules aim at separating the “old” from the “new” economic engagement (with the time the harmful share transfer takes place being the cut-off date). In preliminary proceedings dealing with a similar question, the Lower Tax Court of Hessen (case reference: 4 V 1489/10) relied on the same analysis.
The case decided by the Lower Tax Court of Münster is now pending before the Federal Tax Court (I R 14/11).
If you have any questions, please contact the authors of the article at gtln@deloitte.de or your regular Deloitte contact.
