The federal tax court (BFH) rejected a “restructuring decree” issued by the Finance Ministry (BMF), with the court concluding that the tax benefits granted by the decree with respect to the treatment of “restructuring profits” violated a constitutional principle for administrative actions.
A “restructuring profit” arises when a creditor waives (partly or in full) its debt claims against a distressed business entity, for the purpose of enabling a successful restructuring of the business. This may be viewed similarly to other regimes that provide exemptions for tax on cancellation of indebtedness. Previously, restructuring profits were tax-exempt if certain conditions were satisfied. The rule was repealed, thus making restructuring profits taxable. The restructuring decree (issued in 2003) allows under certain conditions for a general cancellation of income tax that otherwise would be payable on a restructuring profit. With the court decision, however, it is unclear how the German tax authorities will respond or whether taxpayers can still invoke the benefits of the restructuring decree.
Read a March 2017 report [PDF 329 KB] prepared by the KPMG member firm in Germany
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