Period of the Retroactive Effect for Restructuring Measures extended – Does this also apply for tax purposes as part of the German Reorganisation Tax Act?

On 27 March 2020, the law for the Mitigation of the Consequences of the COVID-19 Pandemic in Civil, Insolvency and Criminal Proceedings Law was announced in the Federal Law Gazette (BGBl. I 2020, page 569). Among other things, the retroaction under commercial law in case of restructuring measures for the year 2020 was extended from eight to twelve months, although adaptations in the Reorganisation Tax Act (UmwStG) were not made in this context. This may result in complications.

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Does the extension apply to the period of the retroactive effect for restructuring measures for tax purposes as part of the German Reorganisation Tax Act?

In case of restructuring measures pursuant to the German Law Regulating Transformation of Companies (UmwG) according to section 17 (2) sent. 4 UmwG the following applies in many cases: the decisive closing balance sheet has been prepared as per a cut-off date preceding the application for entry in the register by no more than eight (8) months.

In accordance with the Law on Measures in Corporate, Cooperative, Association, Foundation and Property Ownership Law to combat the effects of the COVID-19 Pandemic, the final balance sheet under commercial law within the meaning of section 17 (2) sent. 4 UmwG may, in deviation from this, be prepared as per a cut-off date not more than twelve months prior to the date of application. This is valid for applications in the year 2020.

In the relevant documentation, no reference was made to a possible or even necessary adaptation of the provisions of the UmwStG. As a result, it is possible that the basic synchronisation of the Transformation Law and Reorganisation Tax Law cannot be implemented completely.

In our opinion, the adopted twelve-month period should be extended for tax purposes for mergers under sections 3 et seq. and sections 11 et seq. UmwStG as well as split-ups and spin-offs pursuant to sections 15, 16 UmwStG, since section 2 UmwStG applies and is based on section 17 UmwG with regard to the retroactive effect on the final balance sheet under commercial law.

The situation is problematic though in the case of spin-offs pursuant to sections 20, 24 UmwStG and legal form transformations in accordance with sections 9, 25 UmwStG, as the standards contain a separate provision on retroactivity (eight months). In this respect, we recommend that the eight-month period should first be included in any planning and coordinated with the competent tax office.

Final clarity as to whether the twelve-month period under the new law is also to apply generally for tax purposes will probably not be achieved in future until the legislator adopts (interim) adaptations to the UmwStG in line with the Law for the Mitigation of the Consequences of the COVID-19 pandemic in Civil, Insolvency and Criminal Proceedings Law or until the German Federal Ministry of Finance (BMF) makes a respective statement in writing. Otherwise, it is possible that some restructuring measures may already fail due to the lack of adaptations of the UmwStG.

BEITEN BURKHARDT will be pleased to support you in the planning and execution of the legal transformation and the coordination with the fiscal authorities.

Dr Karl-Dieter Müller

Benjamin Knorr

Dragan Skrebic