date | theme

25. April 2017 | Use loss carry forward in the GmbH purchase

23. August 2018 | GmbH loss carry forwards: § 8c KStG unconstitutional -> objection & deadline

11. November 2018 | Save the loss carry forwards at the GmbH: the new § 8d KStG helps!

17. February 2019 | Buy loss carryforwards from GmbH: 6 new strategies for the use of losses

09. May 2019 | § 8d KStG: Continuation-related loss carry forward according to § 8d KStG (this contribution)

Beneficiary Legal Effects | Burdensome Legal Effects

– Determination of a continuing loss carry forward | – Observance of the provisions on the duration of the loss carry forward

– Loss maintenance at 100% | – Loss loss at 100%

Business operations according to § 8d para. 1 S. 3 KStG

uniform profit-making intention | mutually complementary and supportive activity | Qualitative characteristics

according to § 8d Abs. 1 p. 4 KStG

Services and products offered | Customer and supplier circle | Markets served | Employee qualification

The acquisition of a corporation in which there is a loss carry forward has so far only been of limited advantage. Often it was difficult for the acquirer to avoid the sinking of the loss carry forward. According to § 8d KStG, the continued loss carry forward now offers the opportunity to make better and easier use of loss carry forward despite a change of shareholders. What special features must be considered in this context is the focus of this article.

1st Introduction

This article deals with the provision of the new § 8d KStG, the continuing loss carry forward. It was introduced on January 1, 2017 and is directly linked to § 8c KStG.

With the introduction, legislators are pursuing the goal of improving the use of loss carry forwards for corporations and reducing obstacles to corporate financing. Until now, §8c KStG in its core legal consequence determined the loss loss in the event of transfer or sale of a limited company. The new § 8d now makes it possible to maintain the losses by forming a separate loss carry forward. The aim of the regulation is to improve the tax and economic situation of companies. However, the formation of a new loss carry forward is subject to strict conditions. If not all the criteria are met, the taxable person may also suffer a negative impact. According to the explanatory memorandum, § 8d KStG is intended to increase legal certainty in the use of losses and to distort business decisions as little as possible[1].

1.1. Objective

The aim of this article is to point out problems and weaknesses of the standard. By presenting and analyzing the factual requirements and legal consequences, it is examined when a claim to § 8d KStG is advantageous.

At the end of this elaboration, it will become clear whether the legislature has succeeded in improving the use of losses for corporations, reducing tax barriers in corporate financing and increasing legal certainty.

1.2. procedure

First of all, in the basic section, the conditions and legal consequences of §8c KStG are explained as well as essential exceptions (exemption provisions), such as the group clause and the silent reserve clause. The significance and objectives of the new introduction of the continuation-related loss carry-forward (§ 8d KStG) are also presented as an independent extension of § 8c KStG from the point of view of the legislature.

The special section deals with the preconditions and legal consequences of the new § 8d KStG. These are examined with reference to literary opinions and jurisprudence on their suitability to achieve the previously mentioned goals of the legislature.

Using an example, the analysis section will show the impact on companies of drawing on the continuing loss carry-forward.

2nd basic part

2.1. §8c KStG

The provision §8c KStG was introduced in 2008 as part of the corporate tax reform. It replaced the previously applicable § 8 Abs. 4 KStG[2]. Before the introduction of §8c KStG, so-called shell purchases were possible. In the course of this process, one limited company acquired another non-capitalised company with significant accumulated losses. Subsequently, these losses were used to offset against own profits and thus the tax base for the tax was significantly reduced[3]. A continuation of the acquired company was usually not intended in this model. §8c KStG prevents this design.

2.1.1. Conditions/legal consequences

The provision basically provides for two different legal consequences. On the one hand the quota/partial loss of losses (para 1 p. 1) and on the other hand the complete loss loss (para 1 p. 2). This always affects the loss that was last established for tax purposes in accordance with §10d EStG. In both cases, § 8c para. 1 S. 1 and S. 2 KStG a period of five years is considered. If more than 25 % of a share in a corporation has been transferred during this period (harmful acquisition of a shareholding), the unused losses are to this extent no longer deductible. If 30 % of the share capital of a GmbH were acquired, 30 % of the previously unused losses (remaining loss carry forward) would disappear.

If more than 50% of a corporation is transferred within five years (harmful acquisition of a shareholding), § 8c para. 2 KStG provides for the complete cancellation of losses. The same legal consequence occurs in the case of capital increases with a change in the shareholding structure. If the capital of the company is increased by more than 25 % as a result of a shareholder takeover, the losses are also reduced proportionally here.

Although in the case of corporations the principle of separation is to be applied and thus a strict separation of the company and shareholder level takes place, this is breached by § 8c. In order to assess whether a harmful shareholding has been acquired, there is inevitably an attack on the shareholders.

2.1.2. Emergency arrangements

Due to strong criticism of the too restrictive[4] § 8c KStG, the Growth Acceleration Act in 2010 supplemented the standard with two exemption regulations.

2.1.2.1. Group clause

In particular, § 8c para. 1 S. 5 KStG declares the non-application of the legal consequences resulting from S. 1 and S. 2. In cases where: