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Government Suggests 12 Company Tax Changes


The Christian-Liberal Coalition representing the current German government on a Federal level has recently published a paper on further steps suggested to "modernise" and "simplify" the taxation of companies. It is based on a recent analysis related to the harmonisation of the French and German corporation tax bases including a common tax group relief not relevant before 2016 on one hand and on the other hand steps that are identified as relevant for financing the expected state income reduction from 2016 onwards due to this envisaged harmonisation. Taxand Germany examines the impact that this raft of changes is likely to have on corporate taxpayers in Germany.

One of the most relevant changes suggested impacting foreign investments in Germany is the leveraged buyout "LBO restriction". The government wants to disallow completely the deduction of interest expenses for acquisition debt-push-down models, if the company has to pay its own acquisition costs and the earnings stripping rule is not applicable or not sufficient.

Another step suggested relates to the transfer of non-current assets to a foreign branch, business or in case of the change of the legal seat to another country. Currently the German tax law identifies the hidden reserves on assets or a business transferred in the moment of the transfer. For transfers of non-current assets to another EU Country the law allows paying corporation tax and trade taxes thereon in equal instalments over a period of five years. Due to a recent EU Court decision the Federal Ministry of Finance has already announced that the application of the beneficial payment over five years may be accompanied by security and interest payments.

Also double dip models or hybrid structuring shall be restricted in cases of a non-corresponding taxation in the countries involved. This will include explicitly existing triangular structures including French partnerships. Moreover the monetisation of losses in the case of mergers shall be completely restricted. In the future it shall not matter anymore whether the overtaking entity in case of mergers has reported NOLs. As already applicable for a merger of an entity with NOL carry-forwards into another entity the NOL carry-forwards shall decline in the moment of the merger. This shall also be applicable to mergers effected with a retroactive effect of up to 8 months as allowed by commercial law. It is possible that this may become applicable retroactively to all mergers with legal effect in 2012.

Furthermore it is announced that the German government will only adopt to the minimum extent possible, a recent EU Court decision allowing the deduction of losses of foreign branches from the German tax base and only if the loss is of a final nature. Another step suggested impacting foreign investments concerns payments to foreign partners of a German partnership.

Taxand's Take

If a foreign partner receives interest payments for a loan granted to the German partnership or payments for other assets or real estate provided to the partnership such income shall be added to the income from the German partnership. Currently, such income is not liable to German taxation due to court decisions of the German High Court for Taxes based on existing double tax treaties. Treaty overrides may be mitigated under certain - vague - conditions.

Your Taxand contact for further queries is:
Christoph Kromer
T. +49 6195 592 24615

Taxand's Take Author