Preservation of Tax Loss Carryforwards in Corporate Restructurings: German Tax Authorities Clarify the Restructuring Exception

Share transfer for restructuring purposes

In its recent circular, the BMF provides further guidance on the requirements for applying the restructuring clause under section 8c (1a) sentences 2 to 4 KStG.

One key requirement is that the share transfer must be undertaken with an objective intention to restructure the company. However, restructuring does not need to be the sole purpose of the transaction. For these purposes, restructuring means measures aimed at preventing or eliminating illiquidity or over-indebtedness while preserving the company’s essential operating structures (section 8c (1a) sentence 2 KStG). The actual success of the restructuring is not decisive for the application of the clause.

The burden of proof lies with the corporation. It must provide the tax authorities with documentation demonstrating the reasons for the need for restructuring, the measures taken and their suitability to achieve that restructuring. In practice, this can be evidenced in particular by a restructuring plan or a restructuring opinion prepared in accordance with IDW S 6.

From a timing perspective, a share transfer qualifies as being made for restructuring purposes only if it occurs at a point in time when the company is already threatened by, or has already entered into, over-indebtedness or illiquidity within the meaning of sections 17 to 19 of the German Insolvency Code (InsO). Accordingly, share transfers that take place before such a need for restructuring arises do not fall within the scope of the restructuring clause. It is not necessary, however, for insolvency proceedings to have already been initiated at the time of the transaction.

Caution is required in particular in the case of multi-tier shareholding and group structures. The BMF circular makes clear that the restructuring requirements must be examined separately at each level of participation. This principle also applies in the case of tax groups (Organschaften).

Preservation of essential operating structures

A further requirement for applying the restructuring clause is the preservation of essential operating structures (section 8c (1a) sentence 3 KStG). This condition is deemed to be met only if the corporation satisfies at least one of the following three exhaustively listed criteria:

• entering into a works agreement containing job retention provisions and complying with it in practice;
• meeting the payroll threshold requirements; or
• contributing substantial business assets within twelve months of the share transfer.

The BMF circular provides additional guidance, including examples, on how these criteria are to be assessed in practice. This is particularly relevant in relation to the contribution of substantial business assets. In this context, it should be noted that any distributions made within three years after the contribution must be offset against it, resulting in a net assessment.

If none of these criteria continues to be met, the restructuring clause ceases to apply in full and with retroactive effect (section 175 (1) sentence 1 no. 2 of the German Fiscal Code (AO)). In such cases, other exemptions for harmful share transfers — such as the group clause or the hidden reserves clause — may still be available. Alternatively, an application may be made for the continuation-bound loss carryforward under section 8d KStG, provided the respective requirements are met.

Cessation of business operations and change of industry

To prevent misuse, the restructuring clause does not apply where the corporation had already substantially ceased its business operations at the time of the share transfer or where, within five years after the transfer, it changes its line of business — for example, by commencing a new activity while discontinuing the previous one (section 8c (1a) sentence 4 KStG).

Constitutionality of section 8c KStG remains unresolved

The constitutionality of section 8c KStG is still pending before the German Federal Constitutional Court (case no. 2 BvL 19/17). In its preview published on 12 March 2026, the Court announced that a decision on the matter is expected in the course of the 2026 calendar year (“Read more here”). Further development therefore remains to be seen. Companies should ensure that relevant tax assessments remain procedurally open where appropriate.

Practical takeaway

Companies involved in restructuring or turnaround processes should address the treatment of tax loss carryforwards at an early stage. The new BMF circular on the restructuring clause underlines the importance of structuring and documenting both restructuring measures and share acquisitions from a tax perspective as early as possible where the preservation of tax losses is intended.

Please feel free to contact us if you would like advice on the application of the restructuring clause.

This article was prepared in cooperation with Lukas Kaul.

Current tax developments – brief updates

FG Münster: Minimum holding period under section 6b EStG in the case of sister partnerships

In a decision dated 16 April 2026 (8 K 820/64 G,F), the Münster Fiscal Court held that the minimum six-year holding period required for the transfer of hidden reserves or the creation of a tax-free reserve under section 6b (4) sentence 1 no. 2 EStG must be assessed on a partner-by-partner basis. In the case of a partnership, the holding period must therefore be reviewed separately for each individual partner.

In the case at hand, an asset was transferred for consideration between two sister partnerships in which the same individual held a 100 percent interest. Contrary to the position taken by the tax authorities, the court held that this transfer did not interrupt the relevant holding period for that partner. As a result, the tax relief under section 6b EStG remained available. An appeal is currently pending before the Federal Fiscal Court (BFH) under case no. IV R 9/26.

FG Münster: Convertible loans may satisfy the arm’s length test even without collateral

As a general rule, a write-down on a loan receivable from a parent company to a subsidiary corporation (where the shareholding exceeds 25 percent), even if permissible in the tax balance sheet due to a likely permanent impairment, must be added back for tax purposes. An exception applies if the loan can be shown to have been granted at arm’s length terms.

In its decision of 17 February 2026 (13 K 905/24 K), the Münster Fiscal Court held that, for purposes of the escape clause in section 8b (3) sentence 7 KStG, the arm’s length nature of a loan cannot be denied solely because no collateral were provided. Rather, the decisive question is whether a specific arm’s length comparison can be demonstrated on the basis of agreements entered with unrelated third parties. The court also clarified that the use of a convertible loan structure does not in itself preclude application of the escape clause. In the case before the court, the taxpayer was therefore able to fullfill the arm’s length test. The decision is particularly relevant — and welcome — in the context of start-up financing. An appeal has been admitted and is currently pending before the BFH under case no. I R 4/26.

BFH on trade tax add-back for short-term accommodation rentals

In three judgments dated 15 January 2026 (III R 28/24, III R 3/23 and III R 39/22), the Federal Fiscal Court addressed the potential trade tax add-back of expenses incurred for the short-term rental of accommodation, in particular hotel rooms, as immovable assets under section 8 no. 1 letter e GewStG.

A prerequisite for such an add-back is that the rented assets would be regarded as forming part of the taxpayer’s notional fixed assets. According to the BFH, this depends, among other things, on whether the rented accommodation is objectively and subjectively intended to serve the business on a long-term basis. Whether this is the case must be assessed in light of the taxpayer’s specific business model and the circumstances of the individual case.

Companies that regularly rent accommodation as part of their business activities — for example in the events sector — or for employees working away from their usual place of work should consider reviewing the BFH’s guidance in light of their own circumstances. We would be pleased to assist.

Ninth Act Amending the German Tax Advisory Act / minimum trade tax rate

On 8 May 2026, the Bundesrat did not approve the draft Ninth Act Amending the German Tax Advisory Act (Bundestag printed paper 223/26 dated 24 April 2026). In particular, the proposed tax-free bonus of EUR 1,000 per employee intended to offset the impact of rising consumer prices did not receive approval.

The Federal Government has decided not to initiate mediation proceedings. Instead, it has reintroduced the bill to the Bundestag in revised form, with the relief bonus removed. The proposed increase in the minimum trade tax rate from 200 percent to 280 percent as from 2027 remains unchanged. The Bundestag resolution and Bundesrat approval are expected as early as 12 June 2026.