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Brussels, 24 th February 2010

State aid: Commission opens in-depth investigation into German rules on fiscal loss carry-forward for ailing companies ("Sanierungsklausel")

The European Commission has opened a formal investigation under EU Treaty state aid rules into a German tax advantage granted to ailing companies when there are significant changes in their shareholding. The German authorities consider that this measure does not fall under the state aid rules. The Commission, however, is concerned that the measure may favour ailing companies in comparison to healthy companies, with regard to their loss carry-forwards. The Commission has doubts on the compatibility of the measures with the EU Guidelines on Rescue and Restructuring aid. The opening of an in-depth investigation gives interested parties the possibility to comment on the proposed measures. It does not prejudge the outcome of the procedure.

EU Competition Commissioner Joaquín Almunia said: “ It is of course for the Member States to decide whether companies can carry forward losses in order to reduce their tax burden in future years by setting off those losses from the taxable income. The Commission, however, has to ensure that such rules on fiscal loss carry forward do not unduly discriminate against other market players."

The so-called Sanierungsklausel relates to corporate income taxation of companies where there are significant changes in the shareholding. It only applies to ailing companies that have potential for a turn-around. It provides them with the possibility to carry forward fiscal losses, i.e. taxable income in future tax years may be reduced by setting-off the losses incurred in the past. Under the general rules, such loss carry forwards would have been forfeited if there were significant changes in the shareholding.

At this stage, the Commission considers that the Sanierungsklausel might constitute State aid. In particular, the measure seems to be selective, as it differentiates between ailing companies and healthy companies. Indeed, both companies could be loss making, but only the former are eligible for the carry forward of such losses under the Sanierungsklausel. So far, the German authorities have not provided sufficient arguments that would lead to the conclusion that the Sanierungklausel is justified by the nature and general scheme of the German tax system.

The Sanierungsklausel was adopted in July 2009 and has been applicable retroactively since 1 January 2008. Originally, the provision should have expired on 31 December 2009. However, at the end of 2009, the German government adopted a law making the measure permanent.

As Germany did not notify the Sanierungsklausel, the Commission was unable to assess it before it was put into effect. Germany has, however, actively cooperated with the Commission in the investigation leading to the present decision. The Commission will now verify whether the Sanierungsklausel entails state aid. If so, it has to ascertain whether the measure is compatible with EU law.

The non-confidential version of the decision will be made available under the case number NN 5/2010 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News .

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