A company purchase often involves many risks. For example, the company value can fall drastically after the acquisition. However, one can ensure with a design that the company purchase still has a benefit despite losses. For example, Elon Musk has probably managed to secure several billion USD for the loss carry forward with his acquisition of Twitter. Similar measures can also be taken by entrepreneurs in Germany to take advantage of losses incurred by a company purchase – even on a private level.

1. Using Losses After a Business Purchase – Introduction

Entrepreneurs have always strived for profit. This means that they want to earn more money for their activity than they have previously spent on it. Logically, this is the basis of all economic activity, because otherwise the resources required for production and distribution would one day be exhausted. Then it would be over with the company.

2. losses after company purchase: how to deal with it?

And yet there are situations that are exceptions to this. Take the example of the purchase of the social media platform Twitter by Elon Musk, the richest person in the world. He paid about USD 44 billion for the acquisition of the company, which on the one hand is likely to be a strong inflated price. On the other hand, since its acquisition, the value of the company has fallen sharply due to various circumstances. In fact, one year after the acquisition, the company’s value was only USD 15 billion. As a result, Elon Musk lost $29 billion by buying Twitter. How do we deal with this?

So we are now looking at the question of how to use any losses after a company purchase of this type. In addition, we also consider whether this may also apply to Elon Musk after his acquisition of Twitter.

Taking Losses from Corporate Purchase: Elon Musk Buys Twitter

Initially, the purchase price was very high at USD 44 billion. Many analysts thought it was excessive. Apparently Musk wanted to go through the purchase in the beginning, so that the price seemed justified to him. But even in the course of the purchase process he must have doubts about it. Finally, he demanded that the purchase price be renegotiated. As a reason, he cited concerns about the number of actually active users of the intelligence service. To enforce this demand, Elon Musk even had himself sued in court. In the end, however, he accepted the original purchase price. He paid $44 billion to Twitter shareholders in October 2022. He took over the shares with his X Corp., which acted as a holding company and in which he held the majority, allowing him to join Twitter as CEO.

This last aspect is very important. Afterwards, Elon Musk had the freedom to change the company according to his own ideas. He renamed Twitter X. He also fired a large part of the executives. But many other employees also had to leave the company. At the same time, however, many advertising customers distanced themselves and deducted their orders from X. This alone was already suitable for significantly reducing the company value compared to the original purchase price. In other words, Elon Musk had to accept a significant loss of value for his company.

Shortly afterwards – and largely unnoticed by the general public – Elon Musk merged his stake in X with his holding company. This in turn is owned by X Holding Corp., which includes other investors who supported the Twitter deal financially. In the course of this merger, the loss in value has apparently also been revealed. Losses of this kind can also be carried forward for tax purposes in the USA and used to neutralize future profits, so that the company sale should have paid off anyway.

Use losses after company purchase: is this also possible in Germany?

Now Germany and the US separate more than just a large ocean. There are also some differences in tax law. But in one point, both are similar, namely, in the use of losses.

Normally, in Germany, no losses generated by a company can be offset on a private level with other income. If, for example, a GmbH shareholder wants to use the losses of his GmbH, then only by offsetting them with future profits. The loss carry-forward therefore takes place solely at the level of the GmbH. The shareholder benefits indirectly, but this is still rather suboptimal. It would be better if the losses could be used on a private level to offset against other income.

And you can too. This requires a GmbH with more than one shareholder. The GmbH is now making a company purchase. Subsequently, various entrepreneurial measures are carried out which cause the value of the acquired company to decline. But you have to make sure that this does not trigger a hidden profit distribution. Special depreciation or a reduction of the customer base may be possible here. In any case, the value of the company drops significantly after the purchase. Now the GmbH sells the acquired company to another subsidiary. Such a company sale usually uncovers and taxes hidden reserves. In this case, however, the sale of the company leads to the discovery of the loss caused by the impairment, which we can now use to offset against future profits.

But this is only the first part of the design. Because now the shareholders sell their shares among themselves. Their value has also fallen. By selling at a private level, the shareholders thus also find a loss – at a private level. And they can actually use this to bill it directly with positive income from other sources.

Use losses from a company purchase – Conclusion

In this way, you can also use a company purchase in Germany to offset losses on a private level with other income and thus optimize the income tax. Since this is a very special design, you should always discuss and plan this with experts in design consulting. In any case, this design model also represents a certain reinsurance in the case of a risky company purchase. Since the economic situation in Germany is currently unfavorable, this option can prove to be advantageous in a planned company purchase. Finally, there is no reason to fully accept the risk if the legislature has created opportunities to cushion it, at least in terms of taxation. You just have to know how to do it.