New draft bill: Changes planned to “corporate group clause” and transformations

On 20 February 2015, the German Ministry of Finance published a new draft bill and thereby delivered on its promise to the Bundesrat, the upper house of the German parliament – a promise which, at the end of last year, allowed the prevention of a conciliation procedure on the Customs Code Amendment Act (Zollkodexanpassungsgesetz – ZollkodexAnpG). The following amendment proposals by the Bundesrat are amongst those included in the draft bill which has now been introduced:

Improvements to the “corporate group clause” (Section 8c of the German Corporate Income Tax Act (Körperschaftssteuergesetz – KStG))

The change to the “corporate group clause” contained in the draft bill, which prevents losses being forfeited in the event of a detrimental change in ownership, is beneficial to companies. This results in improvements in cases in which the holding company is involved. Losses are not, for example, forfeited if a holding company sells shares in a loss-making corporation to another wholly-owned subsidiary or acquires such shares from a wholly-owned subsidiary. It is particularly positive that this new provision is already to apply to detrimental changes of ownership after 31 December 2009 and will therefore apply retroactively.

Limitation of consideration for contributions pursuant to Sections 20, 21 and 24 of the German Transformation Tax Act (Umwandlungssteuergesetz – UmwStG)

The planned limitations with respect to contributions made to corporations and partnerships are less positive. A transfer at book value will only be possible if the other consideration granted besides rights in the company does not exceed 25 per cent of the book value of the contributed operating assets, or 300,000 euros. This new provision is already to apply for contribution agreements entered into after 31 December 2014.

Improvements to investment deduction amount in Section 7g of the German Income Tax Act (Einkommensteuergesetz – EStG))

The draft bill provides for additional improvements with respect to the investment deduction amount in Section 7g of the German Income Tax Act, for which the requirement of the function of the relevant business asset being specified will no longer apply as of 2016.

Stricter rules for partnerships which own real property pursuant to Section 1(2a) of the German Real Property Transfer Tax Act (Grundwerwerbssteuergesetz – GrEStG)

The opinion of the tax authorities to date is to be restored with respect to the issue of whether an indirect change in the ownership of a partnership exists, which triggers real property transfer tax pursuant to Section 1(2a) of the German Real Property Transfer Tax Act. Corporations with a direct equity interest are to be considered new shareholders if 95 per cent of the shares in these are transferred to new shareholders. However, this new regulation is not intended to apply retroactively, but will apply to acquisition transactions only after the date of publication of the amendment act.

No change planned “yet” for hybrid financing

The draft bill does not contain the introduction of the “correspondence principle” as demanded by the Bundesrat with respect to the deduction of business expenses to prevent “double non-taxation” and “double-dip structures” when hybrid tax models are used. A joint working group of the German federal government and of the German states has been established to address this issue, the results of which are to be implemented in a separate legislative procedure.

No obligation to tax profits from the sale of free-floating shares is planned “yet”

This newly launched legislative procedure has likewise not been included in the draft bill, i.e. the obligation as demanded by the Bundesrat to tax profits from the sale of free-floating shares. Such future taxation is to be regulated in a separate legislative procedure for the reform of investment taxation, which has been announced for the end of the second quarter of 2015.