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In 1995, a new tax reorganisation law went into effect in Germany which is in many ways more favourable to the taxpayer than the prior law. For details see article no. 5. The new law is applicable by the terms of its sec. 27 to transfers of property based on legal acts taking effect after 31 December 1994.
In its decision of 19 May 1998 (DStR 1998, 1355), the Federal Tax Court has held that a merger pursuant to a merger agreement executed on 12 December 1994 is not subject to the new tax reorganisation law even though the merger was not registered in the Commercial Register until November 1995 and even though its effective date was 1 January 1995.
Application of the old or the new tax reorganisation laws depends, in the court's view, neither on the date of entry in the Commercial Register, which triggers the actual passage of title, nor on the effective date of the merger, which is always retroactive with respect to the date of entry in the Commercial Register. Instead, the court construes sec. 27 UmwStG as referring to the legal actions which lay the groundwork for the merger. The merger agreement and the merger resolutions are of particular importance in this connection.
Since, in the case decided, these legal acts occurred in 1994, the surviving corporation could not assume the loss carryforward of the disappearing corporation under sec. 12 (3) of the new tax reorganisation law. Under the prior law, no passage of loss carryforwards from the disappearing to the surviving corporation was permitted.
The court's decision accords with the provisions regarding the effective date of the 1995 Business Reorganisation Act, sec. 318 of which provides that it is inapplicable to reorganisations as to which contracts were recorded or shareholders meetings were held prior to 1 January 1995.
Disclaimer and Copyright
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.
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