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Subsequent acquisition costs for a shareholding – Default on loans and collateral

Already in 2017, the Federal Fiscal Court (Bundesfinanzhof, BFH) changed its case law on subsequent acquisition costs when shareholdings in corporations are sold. Recently, the German government responded to this case law in its 2019 Annual Tax Act.

The newly added Section 17(2a) of the Income Tax Act (Einkommenssteuergesetz, EStG) specified that acquisition costs also include ancillary expenses and subsequent acquisition costs, in particular,

  • open and constructive equity contributions,
  • loan losses if granting a loan or a loan waiver during a time of crisis for the company was for reasons under corporate law, and
  • defaults of guarantor subrogation claims and comparable claims if the commitment or waiver of the respective collateral were for reasons under corporate law.

According to the new legislation, the requirement for reasons under corporate law would generally be satisfied if, in the same circumstances, an unrelated third party would have called in or not granted the above mentioned loan or collateral.

Moreover, for cases where the shareholder makes contributions to the company’s capital that are over and above the nominal amount of his/her shareholdings, there are now legal provisions for calculating the acquisition costs that require the contributions to be allocated evenly across the entire holdings of the shareholder including new shares obtained within the scope of capital increases.

Please note: The new regulations will be applicable for the first time to divestments (or similar cases) made after 31.7.2019. However, upon application, the new legal definition of acquisition costs may already be applied retroactively.

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