On 8 November 2018, the German Federal Parliament (The Bundestag) has passed the Annual Tax Act 2018 under the name “Law on the avoidance of sales tax defaults when trading goods on the Internet and amending further tax regulations”. The German Federal Council (Bundesrat) is expected to approve the Act on 23 November 2018.

The most important changes in the area of corporate taxation are:

In accordance with the first amendment of the draft of the law, the Act stipulates that capital gains taxation on the disposition of shares in any resident or nonresident German land rich company should only occur if the taxpayer owned at least 1% at any point in time during the five years prior to the disposition. The credit for any foreign income taxes paid on such capital gains, up to the amount of German tax payable on the same capital gain, is still included.

Generally, German loss attributes (loss carryforwards, current losses and interest carryforwards) are forfeited upon a harmful ownership change, i.e., partial forfeiture for ownership changes of more than 25% and full forfeiture for ownership changes of more than 50%, both within five years.

According to the Act, former Sec. 8c (1) S. 1 Corporate Income Tax Act (CITA) (partial forfeiture for ownership changes of more than 25% up to 50%) shall no longer be applicable and has been removed retroactively for transfers after 31 December 2007. Whereas the previous drafts of the law restricted this change for transfers which occurred prior to 31 December 2015, the Act no longer includes this limitation. If endorsed by the German Federal Council accordingly, German change in ownership limitation rules are not applicable for a change in ownership of 50% or less but only for a change in ownership of more than 50% for any transfers after 31 December 2007.

Sec. 34 (6) CITA, which was introduced with the first amendment of the draft and reinstates the “restructuring exception” provision (Sec. 8c (1a) CITA), remained part of the Act.

According to the “restructuring exception,” loss attributes of a company are not forfeited if the company had a change in ownership within the course of a restructuring driven by financial hardships. On 26 January 2011, the European Commission ruled that the “restructuring exception” qualifies as unlawful State aid. As a consequence of the European Commission’s decision the German legislature suspended the application of the “restructuring exception” retroactively.

One 28 June 2018, the European Court of Justice (ECJ) ruled, against the European Commission, that the “restructuring exception” does not constitute unlawful State aid.

In order to implement this ECJ ruling, the Act reinstates the “restructuring exception” retroactively to 2008.