Mergers and Acquisitions Tax Developments - Rules for Carry Forward of Losses Changed

According to current legislation losses may be carried forward against future profits for 10 years. Similar provisions apply on non-used tax credits under the imputation system. The right to carry forward losses is lost if a change of ownership of more than 50% of the shareholdings in a company takes place.

However, under new provisions in tax law even an indirect change of ownership may cause a loss of right to carry forwards.

If a company A holds more than 20% of the shares in a company B, a transfer of ownership of the shares in company B that company A holds is considered to take place if more than 50% of the shares in company A are transferred to new owners. Company B will, however, not lose its right to its losses until altogether more than 50% of the shares in company B are transferred. Such would be the case if other owners of company B shares, with each ownership exceeding 20% of the shares in B, should transfer their shares, so that more than 50% of the shares in B are considered to have changed owner.

This rule might cause concerns in acquisitions and in reorganisations of ownership within groups of companies. Exceptions to this rule may be granted by the local county tax administration.

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