Continuation-linked loss carryforward according to § 8d KStG in Germany

What does it mean?

If there is a detrimental change of shareholders (change of more than 50% of the shareholders), the losses accumulated so far are lost. One way to avoid this is to apply for a continuation-linked loss carryforward.

Requirements

The prerequisite for this is that the essential core of the activity does not change, i.e. that the previous business operations are continued. This means that, among other things, the business operations should not be suspended, should not be used for any other purpose and the corporation should not take up any additional business operations.

A three-year retention period before and a retention period afterwards must be observed.

Clarification in the BMF letter (Federal Ministry of Finance)

In its letter of spring this year, the Federal Ministry of Finance listed some examples and also introduced a so-called de minimis limit for harmful activities.

Here is an example (slightly modified) from the letter on the consequences of applying or not applying the application for a continuation-linked loss carryforward:

“At V-GmbH, there is a continuation-linked loss carryforward within the meaning of § 8d KStG in the amount of € 500,000 as at 31 December 2017. As of 30 June 2018, 100% of the shares in V-GmbH are sold to a purchaser. In the assessment period 2018, V-GmbH achieves a positive total amount of income in the amount of € 200,000. This is fully attributable to the period until 30 June 2018. V-GmbH does not file an application pursuant to § 8d KStG. 

Solution: The remaining continuation-linked loss carryforward within the meaning of § 8d KStG can be offset against the positive total amount of income in the amount of € 200,000, which is attributable to the period until the harmful acquisition of the participation on 30 June 2018. The remaining part of the unused losses in the amount of € 300,000 is lost pursuant to section 8c (1) KStG. 

Variant: V-GmbH files an application under § 8d KStG. 

Solution to variant: Due to the application of V-GmbH, the losses are not lost. Thus, the going-concern loss within the meaning of § 8d KStG in the amount of € 500,000 determined as of 31 December 2017 can be offset against the positive total amount of income. Accordingly, a continuation-linked loss carryforward within the meaning of section 8d KStG in the amount of € 300,000 remains as at 31 December 2018.”

How does the application work?

The application deadline has not been explicitly regulated by law. In principle, the application should be made in the tax return for the assessment period in which the harmful acquisition of shares falls. Thus, the application can still be made subsequently or withdrawn, provided that the tax assessment or the determination of the loss carryforward can still be corrected in accordance with the amendment provisions of the Fiscal Code.

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