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This article was written by
Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal
Senior Consultant, National Office Tax & Legal
If more than 50 % of the shares in a corporation are transferred to an acquirer, previously unused tax losses generally lapse. This applies both to corporation tax and trade tax. However, losses exceptionally remain available if the acquisition is made for restructuring and meets certain criteria of Section 8c(1a) of the German Corporate Tax Act (KStG). The German Federal Finance Ministry (BMF) commented on the application of this restructuring clause in a BMF circular dated 29 April 2026. It supplements the general BMF circular of 28 November 2017 on the loss limitation under Section 8c KStG, which does not include any statements on the restructuring clause. We present its essential prerequisites and the tax administration’s view on them.
The application of the restructuring clause requires that the corporation is in need of restructuring and is capable of being restructured. The share deal must additionally be made for restructuring and be suitable to overcome the need for restructuring — the ultimate success of the restructuring is not decisive. For this purpose, the corporation’s essential operational structures must be preserved. Finally, the business operation must not be essentially discontinued; likewise, a change of industry by the corporation within the first five years after the share deal would be detrimental.
If all factual requirements are met, the losses remain available after the share acquisition and may be offset in subsequent years under the general rules of Section 10d of the German Income Tax Act (EStG) and Section 10a of the German Trade Tax Act (GewStG).
A corporation is in need of restructuring if, according to insolvency-law principles, its inability to pay or over-indebtedness is imminent or has already occurred. In particular, a deficit in the over-indebtedness balance sheet not covered by equity or a bank confirmation that a (follow-up) financing will not be provided indicate a need for restructuring and, together with further documents such as a liquidity plan, can also serve as evidence of the crisis. A filing for insolvency is not required.
Practically helpful is the fact that the BMF expressly recognises restructuring or reorganisation plans prepared for insolvency-law purposes as evidence of both the corporation’s need for restructuring and its capacity for restructuring, as well as of the suitability of the measures taken for restructuring. Similarly, a restructuring expert report recognised in the ordinary course of business for non-tax purposes, e.g. pursuant to the German CPA standard IDW S 6, readily evidences these prerequisites.
The law finally provides three options for preserving the essential operational structures:
As examples of works agreements, the BMF cites those under the German Works Constitution Act (BetrVG), collective bargaining agreements and social plans. A works agreement may expressly permit falling below the initial payroll total, since the corporation need not satisfy all criteria of the statutory catalogue simultaneously. However, a concluded works agreement that is not actually complied with or is even violated will not be recognised from the outset and will lead to a retroactive loss lapse, provided none of the alternative criteria is fulfilled.
Payroll totals must be determined on a shareholder-specific basis in cases of consolidated tax groups (Organschaften). Holdings in operating assets as well as hidden profit distributions are disregarded. Domestic and foreign permanent establishments are to be included. The initial payroll total is determined by the last five financial years ending before the share deal. The payroll rule does not apply if the initial payroll total amounts to EUR 0 or the corporation has no more than ten employees; in these cases the preservation criterion must be met by means of a works agreement or by the provision of substantial operating assets.
For sufficient provision of substantial operating assets, the acquirer of the corporation must provide contributable asset benefits within twelve months after the share acquisition in an amount of at least 25 % of the tax balance sheet total assets (materiality threshold). In the case of a partial share acquisition, the materiality threshold is reduced accordingly. The assets comprise fixed and current assets at book values without balance sheet allowances and deferrals. It is decisive that the contribution is accompanied by an increase in the corporation’s assets. Therefore, mere usage benefits do not satisfy the criterion of providing substantial operating assets, nor do mere reclassifications within equity. Asset transfers in the context of transformations and contributions are to be taken into account insofar as they result in an increase in the tax equity of the loss corporation. Caution is required for three years from the provision of the substantial operating assets with regard to open or hidden profit distributions, repayments of nominal capital or other payments to shareholders: these reduce the value of the contributed operating assets retroactively so that the applicable materiality threshold may be missed and a retroactive loss lapse may occur.
For multi-tier shareholdings or group structures, the factual requirements must be examined separately for each loss company. The application to indirect share acquisitions does not automatically follow from the application to direct acquisitions.
A group-wide restructuring plan or expert report is sufficient if the participation of the downstream company is evident from it. Any relevant payroll total must, however, be determined on a company basis, so payroll totals from holdings that are part of the operating assets are not to be taken into account.
Assumption of losses within a valid Organschaft constitutes a provision of substantial operating assets, whereas intra-group or pre-Organschaft partial transfers of funds do not.
Note
Share deals made before the onset of the company’s crisis are not protected by the restructuring clause, nor are share acquisitions made after the restructuring is completed. In particular, if share acquisitions take place both before, during and after the crisis within five years, only acquisitions made during the crisis are potentially protected by Section 8c(1a) KStG. If the share acquisitions before and after the crisis together already exceed the 50 % threshold, there is no scope for the restructuring clause, with the consequence of a complete lapse of losses.