In its ruling of 29 March 2017 (case no. 2 BvL 6/11) published on 12 May 2017, the Federal Constitutional Court declared the regulation on the reduction of loss carryforwards for corporations (Section 8c (1) sentence 1 KStG) to be unconstitutional due to a violation of the principle of equality. However, the court gives the legislator the opportunity to create a constitutional regulation retroactively by the end of 2018. What does this mean in practice?
With immediate effect, all tax assessment notices (in particular loss assessment notices for a GmbH or AG) should be contested with an objection if the loss carryforwards have been reduced due to a change of shareholder of more than 25%.
The court recognises that there may be cases, such as the earlier so-called shell purchase, in which a reduction of loss carryforwards may be justified. In this respect, it remains to be seen how a new statutory regulation will turn out. However, in the case of a "normal" change of shareholder of a corporation that continues to be active, the loss carryforwards should have been retained. Even in the case of a change of shareholders of more than 50%, one cannot be so sure. Furthermore, the court expressly left it open whether something else applies retroactively from 1 January 2016 since the introduction of Section 8d KStG, which is difficult to apply. However, this should not deter those affected from having high hopes.
Shareholder changes in the start-up phase of start-up companies in particular could benefit significantly from the court's decision. However, the situation may now also arise in which the valuation carried out prior to the sale of shares looks completely different in retrospect. Sellers who have received a purchase price that is too low due to the presumed impairment of loss carryforwards will not be very happy, especially as there are unlikely to have been corresponding provisions in share purchase agreements that would now allow a retrospective purchase price adjustment. The new legal situation will have to be taken into account when selling shares in the future.
Dr Wolfgang Walter is a lawyer, tax consultant and specialist lawyer for tax law at TAXGATE, a tax law firm specialising in transactions, investments and tax compliance, and comments on the tax group regulations in the KStG commentary published by Stollfuß-Verlag.
