Germany: 099. Tax Legislation: Promulgation And Amendment Of Business Tax Reform Bill

Last Updated: 17 December 1997
KPMG Germany Webpage
Click on the above link to visit the KPMG Germany webpage on the Mondaq website
For disclaimer and copyright see end of this article.

The "Act for the Further Reform of the Taxation of Enterprises", reported on in article no. 80, was promulgated on 31 October 1997 and has accordingly entered into force. Repeal of the trade tax on capital effective from 1998 onwards and extension through 1997 of non-collection of the trade tax on capital in the new German states are the most important measures contained in the new law. The other major provisions in the new tax legislation are all revenue-generating changes included to neutralise the effect of repeal of the trade tax on capital.

1. Amendments to the new legislation

A separate tax bill amending the effective dates of key provisions in the "Act for the Further Reform of the Taxation of Enterprises" has received the approval of the Conference Committee of the German parliament and the Federal Council. These amendments thus appear likely to become law.

The amendments are as follows:

  • At present, repeal of the tax exemption for recapitalisation gains on the waiver of debt (sec. 3 no. 66 EStG) applies to fiscal years ending from 1997 on. The new legislation would push the effective date back by one year to fiscal years ending from 1998 on.
  • At present, the stricter requirements for legal identity and preservation of loss carryforwards under the new version of sec. 8 (4) KStG apply to tax years from 1997 on. The new legislation would retard the effective date by one year for corporations which lost their legal identity (under the new stricter standards) prior to 6 August 1997. For such corporations, the new provisions would apply starting with the 1998 tax year.
  • The various changes in loss utilisation under the Tax Reorganisation Act currently apply to reorganisations entered in the Commercial Register from 1997 on. The new bill would cause the loss utilisation restrictions to apply to reorganisations for which a request for entry in the Commercial Register was filed after 5 August 1997, irrespective of the date of actual entry pursuant to the request.

The sections which follow discuss additional aspects of certain provisions contained in the "Act for the Further Reform of the Taxation of Enterprises".

2. Effective date of amendment to sec. 50c EStG

Contrary to the impression which may have been given by our prior article, the changes reported on in sec. 50c EStG (income tax act) take effect for tax years from 1997 onwards (not as of the date of promulgation of the law - sec. 52 (1) EStG). Section 50c EStG is an important anti-avoidance provision which in certain circumstances prevents writedowns in the value of shares by reason of dividends paid and step-ups in basis on conversion of a corporation into a partnership. Previously, the statute had operated essentially upon purchase of shares in a German corporation by a domestic purchaser from a seller not entitled to the corporation tax credit with respect to those shares (i.e. non-resident sellers not holding the shares in a domestic permanent establishment, either directly or through a partnership). New sec. 50c (11) EStG extends the provision to apply to purchase of shares in a German corporation from all persons not taxable in Germany on the sale of the shares. The primary targets of the amendment are individuals holding stakes of up to 25 % as private property (as opposed to business property).

In an excellent essay dealing with all the major changes in the tax law wrought by the new legislation (DStR 1997, 1427), Fueger/Rieger argue (p. 1431/2) that application of the amendment in sec. 50c EStG "from the tax year 1997 onwards" means that

i. the participation with respect to which a so-called "blocking amount" arises under sec. 50c EStG must have been acquired from 1 January 1997 onwards and

ii. the blocking amount must affect income for the tax years 1997 onwards.

If they are correct in this view, the second condition would mean for instance that the amendment to sec. 50c EStG would not apply to conversion of a corporation purchased in 1997 into a partnership if the conversion were retroactive to 1996. Retroactivity of up to eight months prior to the date of the relevant filing with the Commercial Register is possible in principle.

Lishaut (DB 1997, 2190) does not entirely share the view of Fueger/Rieger. According to Lishaut (page 2194/2), the date of acquisition of the participation is irrelevant to the operation of the new law.

3. Effective date of new corporate loss utilisation provisions

As reported in article no. 80, the new law has severely tightened the requirements for the "economic identity" which a corporation must maintain to offset its past operating losses against future earnings.

These provisions are likewise applicable starting with the 1997 tax year (sec. 54 (6) KStG), not as of the date of promulgation of the law as our previous article implied.

In the essay above cited (pp. 1436 ff.), Fueger/Rieger interpret this provision as referring to the tax year in which loss carryforwards are utilised, not the tax year in which the events occurred which caused the corporation in question to lose its "economic identity". If they are correct, this would mean that recapitalisations or purchases of loss corporations in years prior to 1997 which did not cause a loss of economic identity under the old law but result in such loss under the new wording would be affected by the new law to the extent they have not exhausted their loss carryforwards by 1996 at the latest.

The expected amendment to the law discussed in section 1 above would permit the former, less stringent version of sec. 8 (4) KStG to apply to corporations which lose their economic identity in 1997 prior to August 6th. The denial of use of loss carryforwards would be postponed for such corporations until 1998.

4. Effective date of new reorganisation loss utilisation restrictions

As stated in our prior article, the new loss utilisation restrictions for reorganisations of corporations into partnerships and into other corporations apply to transactions entered in the Commercial Register from 1 January 1997 onwards. Fueger/Rieger question the constitutionality of this provision (p. 1440/2). They point out that the taxpayer has no control over the date of entry in the Commercial Register. (The time needed by a Commercial Register to enter a transaction can vary considerably depending on the volume of transactions it handles and other factors.) They also note that, by its terms, the new law could apply to transactions completed in 1996 and for tax purposes retroactive to 1996 merely because the Commercial Register entry was delayed until 1997.

The expected amendment to the law discussed in section 1 above would considerably mitigate the problems discussed by Fueger/Rieger and permit reorganisations to come under the old law as long as the request for entry in the Commercial Register was filed prior to 6 August 1997.

This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.