Of course, national tax laws may affect the feasibility of restructurings. In July 2009, the German parliament tried to improve the tax situation for German restructurings by enacting the so called restructuring clause (Sanierungsklausel) in § 8c Corporate Tax Act (Körperschaftsteuergesetz) which allows certain fiscal loss carry-forwards to continue for ailing companies in case of a significant change in their shareholding. The rule was designed to establish a tax advantage for certain share deals in restructurings.
So far, the plan did not work out because on 24 February 2010 the European Commission (EC) opened a formal investigation as to whether the German restructuring clause complies with European state aid rules (press release reference IP/10/180). Following that, the Federal Ministry of Finance (Bundesfinanzministerium) announced by letter dated 30 April 2010 that the restructuring clause shall not be applied anymore by German tax authorities until the EC has decided on its compatibility with the European state aid rules. The Ministry of Finance has further stated that even in cases where a loss carry-forward had already been approved it would have to be reversed if the EC finds that the German restructuring clause is not in line with EU Treaty state aid rules.
Background of the restructuring clause
The restructuring clause had been introduced in July 2009 in § 8c (1a) Corporate Tax Act to limit the loss carry-forward restriction (Verlustabzugsbeschränkung) contained in § 8c (1) Corporate Tax Act. According to § 8c (1) Corporate Tax Act a loss carry-forward cannot be used anymore to reduce taxable profits in case of a direct or indirect transfer of 25%, respectively 50% of the shares in a corporation if the share transfer happens within five years of the acquisition of these shares. This also applies to a capital increase changing the shareholdings in the corporation (as for example in debt-to-equity swaps). Such statutory exclusion of a loss carry-forward may be prejudicial to a successful restructuring of a German company. Therefore, the restructuring clause was inserted in § 8c Corporate Tax Act pursuant to which the acquisition of shares in a company (also by way of capital increase) does not lead to a break-up of loss carry-forwards if such acquisition was carried out for the purpose of restructuring the company.