This content is from: Germany

Germany: EGC rules German exception to change-in-ownership rule qualifies as unlawful state aid

Alexander LinnThorsten Braun

On February 4 2016, the European General Court (EGC) issued a decision upholding the 2011 decision of the European Commission that the 'restructuring exception' in Germany's rules relating to the carryforward of tax losses by companies in financial difficulties constituted illegal state aid under EU law.

Under the change-in-ownership rules, a direct or indirect share transfer of more than 25% and up to 50% (or of more than 50%) of the shares in a company that has loss carryforwards results in a pro rata (or full) forfeiture of the carryforwards. One of the few exceptions to this rule was the restructuring exception, which granted relief for built-in gains and for certain acquisitions of businesses that are in distress, subject to a number of conditions.

The European Commission regarded the relief for distressed businesses as unlawful state aid and requested the German Government not to apply the rule in existing and open cases. The government objected but lost its case before the EGC for procedural reasons. The case against the European Commission then was brought to the EGC by several taxpayers in separate cases of which two have now been decided. Both taxpayers had obtained binding rulings from the German tax authorities confirming their entitlement to future loss offsets despite harmful changes in ownership. The rulings were withdrawn after the European Commission made its request to the German government.

The EGC held that the general rule requires the forfeiture of loss relief on a change-in-ownership and the exception confers a selective advantage on the beneficiary without regard to individual circumstances and, therefore, prefers certain (distressed) companies over their competitors. The court rejected the argument that the change-in-ownership provisions were intended to prevent the abusive practice of buying tax loss companies, whereas the exception was designed to assist distressed companies, because a rescue attempt was not the only non-abusive share acquisition in a loss-making company. The decision of the EGC was appealed by at least one of the taxpayers so that the Court of Justice of the European Union (CJEU) will have the final word on the matter (case ref. C-203/16 P).

Alexander Linn ( and Thorsten Braun (
Tel: +49 89 29036 8558 and +49 69 75695 6444

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