Taxes in turnaround – swift legislative action

Only one month after the surprising decision of the German Federal Tax Court (“Bundesfinanzhof” (BFH)) on the so-called “Decree on Turnaround” (“Sanierungserlass”), the German Bundesrat had already proposed a new statutory regulation and also the German higher fiscal authorities (OFD Frankfurt) has issued a directive on how to deal with applications for the waiver on the taxation of “turnaround profits”. And now the German Federal Government (represented by the Federal Ministry of Finance, BMF) and the German Parliament seemingly want to set the pace:

On 27 April 2017 the BMF published a decree to at least reduce the legal uncertainties associated with the BFH ‘s surprising U-turn. On the same day the German Parliament passed the “Bill against harmful tax practices in connection with the granting of legal entitlements”, in which a new § 3a EStG has been inserted, the so-called “Decree on Turnaround in legislative form”.

This new provision of § 3a EStG will, though, come into force only after approval of the EU-Commission. It remains to be seen whether the Commission will have the same pace as the German legislature. However, in view of the Commission’s own efforts to promote corporate turnaround in the common economic area (see more specifically here), anything but an approval (potentially with some conditions attached) would be a big surprise. In the meantime, however, the above-mentioned BMF-decree of 27 April 2017 will be important for so-called “old cases”, that is, those cases which were already pending before the financial authorities before the BFH decision was published. According to the BMF-decree, these cases may enjoy a certain status and can still hope for a waiver on the taxation of “turnaround profits”.

On the other hand, it will be a waiting period for new cases – i.e. applications filed after 9 February 2017. The legal uncertainty will not be particularly helpful for turnarounds – to put it mildly. From a macroeconomic perspective, one can only be glad that the BFH decision was rendered at times of a prosperous German economy and steadily declining insolvency figures. And one can only hope that the “Decree on Turnaround in legislative form” will be in force before the next economic crisis hits home.

BMF-Decree 27 April 2017 (in German)
Bill against harmful tax practices in connection with the granting of legal entitlements – BT-Drs. 18/11531 (in German)

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