Contrary to my belief, the German legislator seems to have understood the gravity of the situation with which the recent decision of the German Federal Tax Court (“Bundesfinanzhof” (BFH)) has left the turnaround community in dealing with companies in crisis. The German Bundesrat as well as the fiscal authorities reacted rather quickly, unlikely as it may have seemed.
The BFH, with a judgement published in February 2017, had declared that the so-called “turnaround-profits” might be taxed, thereby declaring a decree of the the Federal Ministry of Finance (“Bundesministerium der Finanzen” (BMF) which foresaw a tax exemption in case of turnarounds to be nil and void – a decision which seriously endangers future turnarounds (for full details of the decision and its implications, cf. here).
Already in its session on 10 March 2017, the Bundesrat discussed and proposed to the Bundestag the draft of a new § 3a EStG (German Income tax law) regarding the tax exemption for turnaround gains. Should the Bundestag now act as swiftly as the Bundesrat did, the legal vacuum created by the BFH’s decision might indeed be filled within the remaining legislative period.
Also, the German higher fiscal authorities (OFD Frankfurt) already reacted to the unforeseeable decision on 22 February 2017 issuing an interesting directive which, while aiming to instruct the fiscal authorities, also gives more or less open hints to the policy-makers on how to draft the new law (for a more in depth-analysis (in German) cf. here).
The remaining question will be whether the new provision stands the compatibility test with European Union Law principles. But this will be a question for the next government to deal with.
BRat-Drucks. 59/1/17, cf. p. 10 ss. (in German)
OFD Frankfurt/M., Verfügung vom 22.02.2017 – S 2140 A-4-St 213 (in German)