Restructuring & Insolvency

The German government announced on 9 March 2011 that it plans to appeal against the decision of the European Commission (EC) of 26 January 2011 which stated that the German so-called restructuring clause (Sanierungsklausel) contained in § 8c (1a) Corporate Tax Act (Körperschaftsteuergesetz) is incompatible with the EU state aid rules.

In its decision of 26 January 2011 the EC decided that the German restructuring clause in § 8c (1a) Corporate Tax Act which allows certain fiscal loss carry-forwards to continue for ailing companies in case of a significant change in their shareholding is incompatible with EU state aid rules as it selectively favours companies in difficulty (see our previous article on the EC decision). The German government is of the opinion that the restructuring clause does not provide for selective state aid as defined in Article 107 (1) of the Treaty on the Functioning of the European Union. It therefore plans to bring an action for annulment of the decision of the EC before the General Court of the European Union (German government's press release of 9 March 2011).

On 26 January 2011 the European Commission (EC) concluded its formal investigation of the German 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 and decided that this law is incompatible with EU state aid rules as it selectively favours companies in difficulty (press release reference IP/11/65). The EC ordered Germany to recover any aid granted under the restructuring clause.

As to the Commission’s formal investigation and the background of the restructuring clause see our previous article in the Restructuring & Insolvency blog.

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.

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.