In January 2009, the government of Germany announced a targeted tax change.



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the letter from EC to Germany - Brussels, 24.02.2010 C (2010) 970 final -

Inception date: 01 Jan 2009 | Removal date: open ended

Tax or social insurance relief

The tax measure in question is called "Sanierungsklausel", i.e. reorganisation clause, and is applicable to companies in which changes in the shareholding took place earlier. The Sanierungsklausel enables such companies, if they are ailing, to carry forward fiscal losses, which would otherwise have been forfeited.
The German corporate income tax act ("Körperschaftsteuergesetz") in principle foresees the possibility to carry forward losses incurred in a tax year at the level of a corporate company, meaning that, according to the ability to pay principle, taxable income in future tax years may be reduced by setting-off the losses. This results in a reduction of a future tax burden of the respective corporate company ("Körperschaft").
According to the explanatory memorandum, i.e. the reasoning given by the legislator, the Sanierungsklausel was introduced to tackle the global financial and economic crisis. The German authorities argue that an additional objective of the Sanierungsklausel is to prevent the abuse of the fiscal system. Without such provision, the losses could be trafficked in empty shell companies.
The beneficiary of the Sanierungsklausel is the company to be acquired (target company), which can set-off losses incurred in previous tax years against profits in future tax years. Hence, in these years, the tax burden of the company is reduced. It could however, also benefit the acquiring company in cases where the tax law allows for fiscal consolidation of the group.
Germany estimates that due to the implementation of the measure tax revenues might decrease by EUR 900 million per year.
The Commission concluded that the measure contains state aid and gave the following assessment:
"A measure has to be financed through State resources. A loss of tax revenue is equivalent to consumption of State resources in the form of fiscal expenditure. By allowing companies to reduce their corporation tax burden through the carry-forward of losses, the German authorities are foregoing revenue that constitutes State resources. Indeed, the German authorities informed the Commission that tax revenues might decrease by EUR 900 million per year due to the implementation of the measure. Hence, the measure implies a loss of State resources and is thus granted through State resources." (par. 14 of the letter from EC to Germany - Brussels, 24.02.2010 C (2010) 970 final)
" According to Article 107(1) TFEU, the measure must affect intra-Community trade and distort, or threaten to distort competition. The Sanierungsklausel is not sector specific, i.e. that all sectors could benefit from it. At least some of the sectors benefitting, such as the automotive industry, are surely exposed to strong competition and intra-community trade. Hence, the measure affects intra-Community trade and distorts or threatens to distort competition." (par. 36 of the letter)
Article 107(3)(b) TFEU enables the Commission to declare aid compatible with the Common Market if it is "to remedy a serious disturbance in the economy of a Member State." This aid has to be applied restrictively and must tackle a disturbance in the entire economy of the Member State according to the interpretation of the Article 107 (3)(b) by the Court of First Instance.
The Commission referred to its Communication on the financial crisis (Temporary Framework) and concluded that the Measure complies with the conditions laid therein. Therefore, despite the measure constituting State aid pursuant to the Article 107 (1) TFEU, it is compatible with the internal market according to the Article 107 (3)(b) TFEU. The Commission raises no objections against the measure at issue and authorizes it as emergency intervention in the face of the current financial crisis. (par. 38-53 of the letter ).
A state measure in the GTA database is assessed solely in terms of the extent to which its implementation affects the extent of discrimination against foreign commercial interests. On this metric, the state aid proposed here is discriminatory.