German Constitutional Court Held Parts Of Loss Forfeiture Rules Are Unconstitutional


The German Constitutional Court held that a provision of the loss forfeiture rules, in effect from January 1, 2008, through December 31, 2015, is unconstitutional. The provision stipulates a proportional forfeiture of current tax losses and tax loss carry forwards if more than 25 percent, but no more than 50 percent of the shares in a German corporation were directly or indirectly transferred to a new shareholder or a group of shareholders with aligned interest. (For example, if 30 percent of the shares of a company are transferred, 30 percent of the loss carry forwards would be lost.) An additional provision, which was not addressed directly by the court's decision, provides for a forfeiture of all losses carried forward in transfers of more than 50 percent of the shares.

The court did not repeal the unconstitutional provision with immediate effect, but granted the legislature a grace period until December 31, 2018, to pass a replacement provision with retroactive effect as of January 1, 2008. It is expected that the legislature will limit the scope of the unconstitutional provision in a manner so that losses are not forfeited if the taxpayer's business remains unchanged after the acquisition. Such a rule would...

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