PwC

Tax & Legal

Forfeiture of Loss relief: further referral to Constitutional Court.


On 29 August 2017, the Hamburg Tax Court referred a question to the Constitutional Court on the constitutionality of the rules on the full forfeiture of loss relief under Section 8c 2nd Sentence of the Corporation Tax Act “CTA” (as amended by the Business Tax Reform Act of 2008 -now Section 8c (1) 2nd Sentence CTA ). The referring court is convinced that the rule is unconstitutional.

The referred question relates to the rule according to which a company’s loss carry-forward is fully forfeited, where in a five year period more than 50 per cent of the shares change ownership. This is a further examination of the constitutionality of the highly criticised loss relief forfeiture rules. We will provide you with more detailed information on the referral as soon as the written document is available.

Section 8c CTA has already been subjected to the review of the Constitutional Court; on 29 March 2017 that Court held that Section 8c 1st Sentence CTA (now Section 8c (1) 1st Sentence CTA) contravened the German Constitution.  The scrutinised rule (also a referral of the Hamburg Tax Court), which related to the partial forfeiture of loss carry-forwards where in a five year period more than 25 per cent but less than 50 per cent of the shares changed ownership, was held by the Constitutional Court to be incompatible to the equality. The legislature was given until 31 December 2018 to repair the infringement retroactively for the period 1 January 2008 to 31 December 2015.

(See also: http://blogs.pwc.de/german-tax-and-legal-news/2017/05/16/curtailment-of-loss-relief-for-companies-in-part-unconstitutional/)