With § 3a EStG, German income tax law makes so-called restructuring income tax-free. Profits and other increases in business assets that arise during a restructuring of the business are therefore not subject to general taxation (for example according to § 4 EStG). However, it should be noted that the legislature places certain requirements on the concept of “renovation income”. They are finally standardized in § 3a paragraph 2 EStG.
The tax exemption for restructuring income applies not only to individual companies and partnerships but also to corporations such as the GmbH.
Basics on restructuring income in income tax law
Whether sole proprietorship, partnership or corporation: crises are part of entrepreneurship. Not infrequently, as a result of an economic imbalance, the entire company is insolvent, because over-indebtedness within the meaning of §§ 18 and 19 InsO has occurred. Entrepreneurs are obliged to file for insolvency in these cases, otherwise there may be a delay in insolvency (§ 15a paragraph 4 InsO). She is punished with up to three years of liberty or with a fine.
Over-indebtedness occurs whenever the liabilities (debts) exceed the assets (assets) of the respective company. In this case, the legislature – apart from certain exceptions such as the shareholder loan – assumes an unsustainable corporate concept. With the insolvency application, the entrepreneur can prevent worse, in particular further payment defaults.
These principles are linked to the tax exemption of restructuring income according to § 3a EStG. Because debt cancellation basically leads to taxable profits, because the company capital increases by the elimination of liabilities. However, if this waiver is to be qualified as a restructuring measure, there is no corresponding profit effect. The restructuring income is then tax-free.
2. Corporate restructuring according to § 3a paragraph 2 EStG
The basis for the tax exemption of restructuring income is a corporate restructuring within the meaning of § 3a (2) EStG. ‘Company-related’ means that the reorganisation measure must relate to the company on whose balance sheet the debt ceases. Proceeds from the reorganisation of another company, such as company B by company A, are excluded from the benefit.
In order to benefit from the advantage under § 3a (1) EStG, three conditions must be met:
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.