Germany: Loss limitation rule inapplicable because no change in control (lower tax court decision)

Case of a harmful acquisition of an equity interest that did not lead to a change of control

Lower tax court decision

The Münster Tax Court held (9 K 2166/21 K,G,F dated 23 August 2023) that the loss deduction limitation rule of Sec. 8c Corporate Income Tax Act did not apply in the case of a harmful acquisition of an equity interest that did not lead to a change of control.


The loss deduction limitation rule provides that unused tax losses of a corporation are no longer deductible if more than 50% of the shares are transferred to a purchaser within five years (so-called detrimental change in ownership).

In this case, two shareholders initially held shares in a LossCo: A held 50.2% and B held 49.8%. In 2015, A acquired B's shares and subsequently held 100% of the LossCo. A subsequently sold part of his shares and then reacquired part of them, but A continued to hold an interest of more than 50% in LossCo without interruption. A's interest in LossCo over time until the end of 2017 was 50.2%, then 100%, then 60%, and then 72.4%. In 2018, LossCo increased its share capital, and thereafter A held approximately 79.98% of the LossCo shares.

The tax authority argued that the relevant acquisition limit of the loss deduction limitation rule of 50% had been exceeded (49.8% in 2015 + 7.58% in 2018). The tax court agreed that a detrimental acquisition of shares had occurred, but because there was no change in control, the loss limitation rule did not apply.

The tax authority’s appeal to the Federal Tax Court has been admitted.

KPMG observation

Proceedings challenging the constitutionality of the loss deduction limitation rule are pending before the Federal Constitutional Court (2 BvL 19/17).

Read an October 2023 report [PDF 360 KB] prepared by the KPMG member firm in Germany



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