Trilateral Meeting of the German, Netherlands and British Branches
of the International Fiscal Association
International Taxation on the road to economic recovery
Roland Hummel
3 Nov 2010
1
Treatment of Tax Losses: German domestic dimension
NOL
carryback
Sole Trader
preceding year;
deduction max € 511.5k
IT
(single)
Partnership
Corporation
TT
(-)
IT /
CIT
NOL attributed to
partner;
preceding year
deduction max € 511.5k
TT
(-)
CIT
TT
IT = Income Tax
TT = Trade Tax
preceding year
deduction max € 511.5k
(-)
CIT = Corporate Income Tax
CoO = Change of Ownership
NOL
carryforward
no time limit
deduction p.a. max € 1mn +
60% of income exceeding
€1mn
NOL attributed to partner;
no time limit
deduction p.a. max € 1mn +
60% of income exceeding
€1mn
NOL @ CoO
no transfer
NOL remains with Sole Trader
no transfer to new owner
no transfer to new owner
NOL remains with partner
no transfer to new partner;
limitations in case of CoO in
corporate partner
no time limit
deduction p.a. max €1mn +
60% of income exceeding
€1mn
limitations in case of CoO > 25%
of share capital, forfeiture in case
of CoO > 50%
Multiple changes since 2007 !
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Treatment of Tax Losses: German domestic dimension
Basic
Principle
In-/direct acquisition of stock in a German
corporation within 5 years by qualifying
acquiror in the following ratios
* 25% < x ≤ 50%: proportional forfeiture
of NOL
Introduced wef 2008 (BGBl. I 07, 1912)
BMF – Decree (BStBl. I 08, 736)
widely criticised
Federal Tax Court, I B 49/10 of 26.Aug.10: Compatibility of minimum tax
and loss forfeiture with constitution seriously questionable
* > 50%: forfeiture of entire NOL
Exemption
acquisition for financial restructuring
purposes
NOLs in certain Venture Capital
owned companies
in 2009 wef 2008
initially limited to FYs 2008 and 09; limitation waived in Dec. 09
EC commenced procedure under Art. 108 (2) TFEU (state aid) – C 7/2010
Application now stalled (BStBl. I, 488)
announced in 2008 wef 2008;
never became effective as European Commission denied consent (Decision
of 30.Sep 09)
Intra – group transfers
wef 2010
unresolved questions
NOLs supported by hidden reserves
wef 2010
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Treatment of Tax Losses: German / European dimension
PE
•
•
PE income generally tax exempt in German HQ
What does this mean for PE losses?
ECJ
*
*
28.02.08, C- 293/06, Deutsche Shell, Itl. PE of German HQ; BMF 23.11.2009
15.05.08, C- 414/06, Lidl Belgium GmbH Co & KG (Lux. PE of German HQ)
** subsequent decision by Federal Tax Court (17.07.08, I R 84/04), ignored by Federal Ministry of Finance,
BStBl. I 09, 835
*
** Position Paper, Bavarian upper Tax Authority LfSt BY, 19.02.10, S 1366.1.1-3/10 St32, DStR 10,444
23.10.08, C-157/07, Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt GmbH (Austrian PE of German HQ)
Federal Tax Court
*
03.02.10, I R 23/09 (Lux. PE of German HQ): No „finality“ of foreign PE losses in case of time limits imposed by foreign country
*
09.06.10, I R 107/09 u. I R 100/09 (French PE of German HQ): deduction of factually „final“ foreign PE losses for both Income
Tax and Trade Tax
Sub
•
•
Write down of shares in / shareholder loans to (foreign) subsidiaries not tax effective for German shareholder / lender / guarantor
Under current law, foreign subsidiary does not qualify for an Organschaft
ECJ
*
13.02.05, C-446/03, Marks&Spencer
•25.02.10, C-337/08, X-Holding BV
Lower Tax Courts
*
Lower Saxony, 11.02.10, 6 K 406/08, appeal at Federal Tax Court, I R 16/10; taxpayer turned down re lack of loss compensation
agreement
*
Rhineland-Palatinate, 17.03.10, 1 K 2406/07, appeal at Federal Tax Court, I R 34/10, taxpayer turned down re lack of loss
compensation agreement
European Commission
*
Sept. 2010: Commission requests amendment to double-residence criterion in the German Organschafts-regime
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Current German aspects of interest deduction
Interest Barrier Rule, § 4h EStG, § 8a KStG
Introduced in 2008 (German Business Tax Reform Act), replaced the former thincap rule for corporations
Decree of Federal Ministry of Finance of 21 Feb. 2008
Effect: limitation of interest deduction for businesses (re Income and Trade Tax),
5y carry forward of excess EBITDA in limited cases; carry-forward of nondeductible interest expenses.
Limited deductions for Trade Tax, § 8 Nr. 1 GewStG
Widened the regime to disallow interest expenses
Bank privilege § 19 GewStDV relaxes these rules for banks and certain finance
institutions
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Current aspects of interest deduction
Details on Interest Barrier Rule
Negative Interest Balance (NIB) =
excess amount of interest expense over interest income
(Definitions) of a business (Definition, Group)
Barrier: 30% of tax EBITDA =
determined based on tax rules, only 5% of dividends
Exemptions:
NIB < € 3m
for Group only applicable once
Business belongs to a cons. group
GAAP; potential uniform finance or business policy (IAS
27); corporation: only if no more than 10% of interest
expense relates to substantial (>25%) shareholder,
related party or recourse loan
Business‘ equity ratio ≥ (group‘s equity ratio ./. 2 p.ct. points)
corporation: only if no more than 10% of interest expense
relates to substantial (>25%) shareholder, related party
or recourse loan
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