Taxes in turnaround – another blow by the courts

In another blow to the attempts of the German legislative and executive authorities to maintain some reliability on the German turnaround playing field, the German Federal Tax Court (“Bundesfinanzhof” (BFH)) maintained in a decision issued on 23 August 2017 that the so-called “Decree on Turnaround” (“Sanierungserlass”) could not even be upheld for cases which were filed with the tax authorities prior to the publication of the said BFH-decision (to declare the Sanierungserlass nil and void, cf. here for further details) on 9 February 2017.

With these decisions (in fact it were two), the BFH also declared nil and void the German Federal Ministry of Finance (Bundesministerium der Finanzen (BMF))’s Decree of 27 April 2017 and a Directive of the German higher fiscal authorities (Oberfinanzdirektion Frankfurt (OFD Frankfurt)) which aimed at maintaining the effects of the said Sanierungserlass at least for cases prior to 9 February 2017 in order to protect justified expectations (“Vertrauenssschutz“, for further details, cf. here). According to the BFH’s reasoning, such a decision could only have been issued by the German Parliament.

Already in May 2017 the German Parliament had adopted a new provision to the German Income Tax Act (§ 3a EStG) in accordance with the BFH’s reasoning. However, this provision will only enter into force after approval of the EU-Commission – which is still outstanding (for further information, cf. again here). Until then, restructuring measures involving a waiver of claims will run the risk of being taxed under German law.

BFH, judgements as of 23 August 2017 – I R 52/14 and X R 38/15

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