29 December 2009
On December 4, 2009 the German Federal Parliament (Deutscher Bundestag) adopted the Growth Acceleration Act (Wachstumsbeschleunigungsgesetz). On December 18, 2009 the act also got its consent from the German Federal Council (Bundesrat). Therefore, the Growth Acceleration Act will come into effect in Germany on January 1, 2010. The act’s main purpose is to encourage and stimulate the economic growth in Germany after the economic crisis of the last year by providing tax relief for companies as well as private persons. The most important changes affect the interest barrier rule and the regulations on tax losses and loss-carry forwards.
German Income Tax
The Growth Acceleration Act introduces an option for the depreciation of Low-value assets into the German Income Tax Act (Einkommensteuergesetz). A direct depreciation for assets with a value below the limit of EUR 410 is from now on possible. Alternatively, a cumulative account may be constructed for all assets between EUR 150 and 1000.
The so called Interest Barrier Rules provide for an interest deduction limitation allowing a company to deduct interest to the extent a threshold of currently EUR 1 million of interest expenses is not exceeded or the company’s interest expenses do not exceed the interest earnings. Interest expenses deduction exceeding these thresholds can be claimed in an amount of up to 30 percent of the company’s EBITDA. Exemptions from the Interest Barrier Rules are made for companies which are not affiliated with others or for affiliated companies which provide for a equity ratio (ratio between the equity and the balance sheet total) equal to or not less than 1 percent of the equity ratio of the consolidated group to which it belongs.
The Growth Acceleration Act now allows a company to carry forward those parts of the EBITDA of a fiscal year into the maximum of the five preceding fiscal years which is still offsetable, i.e. EBITDA which is not totally used up by offsetting against interest expenses of the current fiscal year on the basis of the 30 percent rule mentioned above.
In addition, the new rules extend the EUR 1 million threshold of non-limited interest deductibility to EUR 3 million and also increase the 1 percent tolerance range, in which an affiliated entity might deviate from the consolidated group’s equity ratio, to 2 percent.
Corporate Income Tax
According to the general rules set out in section 8c Corporate Income Tax Act (Körperschaftsteuergesetz), tax losses and tax loss carryforwards will be lost on a pro rata basis if more than 25 percent of the shares of a corporation are transferred (directly or indirectly) to an acquirer or someone affiliated with the acquirer within a term of five years. In case more than 50 percent are transferred, the tax losses and tax loss carryforwards will be lost in their full amount.
In contrast, the Growth Acceleration Act introduces a corporate group clause (Konzernklausel). This clause implies that it does not lead to a harmful share transfer, when one person holds shares of not less than 100 percent (directly or indirectly) of the selling as well as the acquiring company in relation to an internal restructuring.
Tax loss carryforwards can be realized in the amount of unrealized gains that are present at the time of the transfer (pro rata or in full amount depending on whether there is a harmful share transfer with more than 25 percent or more than 50 percent). Unrealized gains are described by the Growth Acceleration Act as the difference between the total amount of equity (pro rata or full amount) and the respective fair market value of the shares.
Recently, due to the financial crisis, a financial restructuring exception has been introduced for a certain time period. This exception is now being implemented with an indefinite time frame. According to this rule, tax losses and loss carryforwards subsist even if they relate to a harmful share transfer described above. However, it is required that the shares of that company have been acquired with the intention to rescue it through financial restructuring.
The percentage of the interest share which must be added to the operating profit of rent, lease and leasing rates for immovables of the fixed assets has been lowered from 65 percent to
Value Added Tax
The value added tax for hotels, camping and other short term accommodation has been reduced from 19 to 7 percent. This rule does not apply for breakfast or other ancillary services offered by a hotel.
Inheritance and Gift tax
The barriers for obtaining business property relief are watered down, sections 13a, 19a Inheritance Tax Act (Erbschaftsteuergesetz). The new rules affect the reduction of the total sum of salaries and wages as well as a shortening of the required holding period. The changes in this case shall become effective retroactively from January 1 2009.
Real Estate Transfer Tax
With the Growth Acceleration Act the restructuring inside a trust structure, according to the newly introduced section 6a into the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz), is no longer subject to Real Estate Transfer Tax. For obtaining the benefits of this tax relief, the section requires the transfer to be established upon a reorganization pursuant to section 1 sub-section 1 No. 1-3 of the Real Estate Transfer Tax Act (mergers, spin-offs etc.). It applies for restructurings based on the law of any EU and EEA member state, accordingly.
The new section 6a, however, only privileges reorganizations with one dominating company and one or more companies that is/are dependent of this company. A company must be seen as dependent from another company (according to section 6a Real Estate Transfer Tax Act) when the dominating company holds at least 95 percent (without interception) of the dependent company’s capital for five years before the reorganization as well as five years thereafter.
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