Current changes to the BMF Circular on the Re-organisation Tax Act 2025

The tax group for income tax purposes can be commonly found and has significant practical relevance. It allows tax offsetting of profits against losses (including start-up losses) within a group of companies. As the development of legislation and the case law of recent years has shown, some changes have taken place in the rules for tax groups. 

This was cause for the tax authorities to thoroughly update and adapt the part on the effects of reorganisation on a tax group, including in the new BMF Circular on the Reorganisation Tax Act of 2 January 2025. The new Circular replaces the previous one from 2011. It particularly takes into account changes in the law and recent Federal Fiscal Court decisions – and not just related to tax groups. This creates legal certainty for most – but not all – issues on the position of the tax authorities. This particularly applies to cases in which reorganisation or restructuring comes up against a tax group at one of the participating companies.

Main changes in the Reorganisation Tax Act Circular 2025

No adjustment items in tax consolidation for company reorganisation

Starting from the 2022 tax year, a “contribution solution” was introduced. The legislature abandoned the concept of adjustment items for tax consolidation. In light of this, the statements on earlier tax group adjustment items have been removed from the new Reorganisation Tax Act Circular. However, this only applies to periods starting after the contribution solution was introduced. For previous cases, the explanations of the Circular remain in force unchanged. 

Retrospective financial integration

The tax authorities have followed the Federal Fiscal Court decisions from 2023: the Federal Fiscal Court disagreed with the tax authorities’ restrictive view and considered that in the case of a reorganisation “following in the predecessor’s footsteps” (“Fußstapfentheorie”) should have a broader effect for the retrospective allocation of a holding. The same applies to the next question of whether financial integration existed from the start of the financial year. In the new Circular, the tax authorities have now followed the Federal Fiscal Court’s decisions on continuous financial involvement for intra-period reorganisations or integration. 

The tax authorities have also adopted the Federal Fiscal Court’s view relating to allocating a stake in the controlled company to a domestic permanent establishment of the controlling company. 

Attribution of consolidated income and profits from transfer

In 2023 the Federal Fiscal Court confirmed the tax authorities’ view that when a tax group is continued, the full amount of the consolidated income is to be allocated to the entity to be considered as its controlling company as of the end of the controlled company’s financial year. In the new Circular, the tax authorities have expanded this view to cases where a new tax group is formed. 

Furthermore, the tax authorities now assume that in the case of a merger or division any transferred tax profits are part of the income to be allocated to the controlling company and which are also taxable. 

Terminating a profit transfer agreement

Regarding terminating a profit transfer agreement for an important reason, the tax authorities have now created consonance between the Circular and the Corporate Income Tax Regulations (Körperschaftsteuerrichtlinie). The reorganisation of the controlling company or controlled company “may” be deemed an important reason. It should also be examined on a case by case basis; obtaining binding information from the tax authorities is also recommended, as the case may be. This is particularly important when terminating the profit transfer agreement within the first five years of its term. 

In the new Circular the tax authorities have also included a reference to the Federal Fiscal Court case law on combining profit transfer agreements: if a profit transfer agreement becomes redundant before the expiration of the term by being combined with another in a merger, this should always count as an important reason. 

Overpayment and underpayment of tax

Taxes that were overpaid before the formation of a tax group trigger the consequences of a distribution of profits for tax. In this case, the tax consolidation regime does not apply. The tax authorities are now following the case law of the Federal Fiscal Court that the conditions of a “pre-tax group” are only to be understood in terms of time, not in substance. Therefore “overpayments caused outside the tax group” during the period before the tax group’s existence are not included as pre-tax group overpayments, which are often detrimental for tax. 

Alongside this, there are also numerous other adjustments to current legislation and the case law of recent years in the new 88-page Circular. 

Any questions? We’ll give you all-round advice on the topic. Feel free to contact us. 

Current advice – in brief 

Currency losses on shareholder loans before the Corporate Income Tax Modernisation Act (KöMoG)

According to the Federal Fiscal Court decision of 24/04/2024 (I R 11/23) currency losses in shareholder loans in foreign currency do not reduce the income of the lending corporation until and including 2021. An exception is possible if the arm’s-length principle can be proven under Section 8b(3) sentence 6 of the German Corporation Tax Act (Körperschaftsteuergesetz).

No compensation for profits in the retrospective period on mergers

According to the Federal Fiscal Court decision of 13/03/2024 (X R 32/21), on a merger the profit from the retrospective period may not be offset against a loss carry-back that only came about in the following year.   

Suspension of enforcement of assessment notices based on Section 8c(1) sentence 1 of the German Corporation Tax Act (Körperschaftsteuergesetz)

The tax authorities have rejected the application of the Federal Fiscal Court judgment (I B 74/22) to suspend enforcement when losses expire under Section 8c(1) sentence 1 of the German Corporation Tax Act that goes beyond the individual case.

New rule on presumption of receipt of tax assessment notices from 2025

On 1 January 2025 the Postal Law Modernisation Act (PostModG) came into force, according to which tax assessment notices are considered as having been received on the fourth day instead of the third after posting.