Germany: “Restructuring decree” rejected by court; tax benefits uncertain

Germany: “Restructuring decree” rejected by court

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.

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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 The rule was repealed, thus making restructuring profits taxable.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

 

Other topics discussed in this KPMG report concern:

  • A decision of the federal tax court (BFH) about the 5% general add-back for non-deductible business expenses when dividends are paid by foreign corporations; the dividends paid must be exempt from tax in Germany pursuant to a provision of the income tax treaty law.
  • A decision of the lower tax court of Cologne in two cases on withholding tax concerning the use and enjoyment of rights by foreign authors and journalists; in both cases, a domestic media company obtained the “comprehensive use and enjoyment of rights by a “total buy-out” against a lump-sum consideration.
  • A decision of the lower tax court of Saxony concerning certification of a repayment of a capital contribution in a situation of a constructive dividend
  • A decision of the lower tax court of Munich about the time limit for an application for the assessment of a repayment of a capital contribution in EU cases

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