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Loss carry-forwards under Sec. 8d of the German Corporation Tax Act – BMF currently preparing guidance letter on the application of this provision

Since 1.1.2016, it has been possible to apply the exemption in Section 8d of the German Corporation Tax Act (Körperschaftsteuergesetz, KStG) to prevent the derecognition of losses in accordance with Section 8c KStG for harmful acquisitions of shareholdings. Under this exemption provision, continuity of a corporation’s business operations preserves those tax loss carry-forwards that would otherwise be derecognised on account of a harmful change of ownership. The “loss carry-forward tied to the continuation of a business” is assessed separately. In this connection, on 14.8.2020, the BMF (Bundesministerium der Finanzen) sent a draft of the explanatory letter to business confederations and associations with a request for their comments.

The connection between Section 8d KStG and Section 8c KStG

Sections 8c and 8d KStG coexist as two complementary but separate provisions. Unlike the earlier Section 8(4) KStG (old version), there is no requirement for a connection between the transfer of shares and a structural change at the company level.

Under Section 8c KStG, unused tax losses are derecognised if, within a period of five years, more than 50% of the shares in the corporation are acquired (“harmful acquisition of a shareholding”). This restriction does not apply to

  • certain intra-group transfers (“corporate group clause”) and also not
  • if, at the time of the harmful acquisition, hidden reserves were available (“hidden reserves clause”).

Please note: Section 8c(1) clause 1 KStG, which related to acquisitions of shareholdings below 50%, was repealed on 11.12.2018. Applications in accordance with Section 8d KStG under this old legal framework have become invalid; it is unclear how such applications can be withdrawn.

Section 8d KStG contains an exemption provision, subject to an application, for the limitation on the loss deduction in Section 8c KStG that applies in addition to the corporate group and hidden reserves clauses that have already been regulated in Section 8c KStG.

Interim conclusion: Consequently, Section 8d KStG constitutes a possibility to salvage losses that have not already been spared via the corporate group and hidden reserves clauses.

Trade tax loss carry-forwards

Section 8d KStG is also supposed to apply to trade tax - the BMF announced that the German federal states would issue the appropriate decrees. Ever since the introduction of Section 8d KStG, it has been unclear, among other things, whether or not an application to continue carrying forward losses may also be filed in cases where the corporation has only trade tax loss carry-forwards. The BMF has asked the confederations for information as to whether or not there are regulatory requirements in this respect.

Hidden reserves

Under Section 8c(1) clause 5 KStG, in the event of a harmful acquisition of a shareholding it is possible to avoid a derecognition of losses in the amount of the hidden reserves. Should there be any excess losses then it would not be possible to submit an application in accordance with Section 8d KStG.

Please note: Use of the hidden reserves clause and an application in accordance with Section 8d KStG are mutually exclusive.

Concept of business operations


The definition of business operations is of key importance for the application of Section 8d KStG. Accordingly, a corporation’s business operations will be determined on the basis of its ongoing and complementary activities that are sustained by a consistent aim to generate a profit. Qualitative features such as the product offering, customer and supplier bases, markets or staff qualifications should substantiate the business operations. Here, the BMF guidance letter has taken up the principles of the case law of the German Federal Fiscal Court with respect to the trade tax concept of trading activity and a company’s identity.

Please note: The definition of the branch of activity does not matter here.

Several business operations

Section 8d KStG can be applied only if the corporation maintains a consistent business operation, however, not in the case of several business operations. According to the BMF, a number of a corporation’s activities can also be regarded as a business operation. The BMF guidance letter includes numerous examples for this set of issues.

Please note: Following the initial comments from industry, there is nevertheless still a need for clarification; the definition previously envisaged by the BMF could be too narrow.

Future business operations (observation period)

In the BMF draft guidance, on the basis of many different examples, the events that would lead to the derecognition of an assessed loss carry-forward tied to the continuation of a business are explained, namely,

  • if the business operations were to be discontinued
  • or other harmful events should occur, e.g.
    • if the business operations were to be suspended or served a different purpose,
    • if the corporation were to start an additional business operation, and much else besides.

Filing the application

It should be possible to file an application for one assessment period, solely collectively for all the loss carry-forwards that would otherwise be derecognised under Section 8c KStG. The application should generally be filed together with the tax return for the respective assessment period. In the draft, the BMF has clarified that the application for the use of losses can be rectified or withdrawn up until the tax assessment becomes incontestable or the assessment of the loss carry-forward becomes incontestable.

Please note: It remains unclear which form would have to be selected here.

Outlook: In many respects the BMF has provided clarity and, thus, has simplified the filing of applications in accordance with Section 8d KStG. It should be noted that there is an appeal pending at the German Federal Constitutional Court in respect of proceedings concerning the potential unconstitutionality of Section 8c(1) clause 2 KStG. The outcome of this appeal is likely to have implications for the application of Section 8d KStG.

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