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16 February 2016
EU Direct Tax Newsalert
General Court Judgment on German
change of control rules and state aid
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On 4 February 2016, the General Court handed
down its Judgment in the Heitkamp Bauholding
case (T-287/11) dealing with an exception for
ailing companies from the German change of
control rules (“Sanierungsklausel”). The General
Court held that this exception constitutes State
aid.
Background
In 2008 Germany introduced new change of
control rules essentially stipulating that if a
certain amount of shares in a loss-making
company are transferred, the losses of the
company will insofar or even fully be forfeited
(depending on the size of the shareholding
transferred; Sec. 8c German Corporate income
tax act (CITA)). To lessen the negative (tax)
effects of the financial crisis, Germany
introduced the Sanierungsklausel for the FY
2008/2009 (Sec. 8c para. 1a CITA). Afterwards,
the Sanierungsklausel was extended to FY 2010
and onwards.
On 24 February 2010, the Commission published
a press release stating that an in-depth state aid
investigation into the Sanierungsklausel is
opened.
On 26 January 2011, the European Commission
rendered its final decision where it held that the
Sanierungsklausel constitutes State aid.
Several companies affected by this decision and
the German government filed a plea for
annulment with the General Court.
On 4 February 2016 the General Court finally
decided the case of Heitkamp Bauholding
GmbH. It essentially confirmed the decision of
the Commission.
Key aspects
Judgment
of
the
General
Court’s
The General Court held that the plea for
annulment is admissible – which was disputed
before – whereas the claim is unsubstantiated.
In terms of testing the “selectivity” of the
Sanierungsklausel – as the core test in State aid
cases –, the General Court held the following:
Therefore – as a first step – the proper reference
framework needed to be defined to assess
whether ailing companies are favoured by the
Sanierungsklausel in comparison to non-ailing
companies.
Before the Court delivered its Judgment, it was
highly disputed in German tax literature, whether
(i) the possibility to carry forward losses, or (ii)
the change of control rule is the proper reference
framework. The Court held that the change of
control rule is the proper reference system and
the Sanierungsklausel deviates from this system
in favour of ailing companies.
The question remained, whether ailing
companies are comparable to non-ailing
companies in the light of the objective pursued by
the change of control rule.
The General Court held that the objective of the
change of control is to prevent a company to carry
forward losses after its shareholder structure
changed and not to prevent tax avoidance. Since
not only ailing companies can be in a loss-making
position, both groups of companies are
comparable. In the light of this objective, the
Sanierungsklausel is essentially favouring ailing
companies in comparison to non-ailing
companies.
Lastly the Court held that the Sanierungsklausel
cannot be justified by the ability to pay principle
as part of the nature and general scheme of the
German tax system, since it is not evident why
this principle requires an ailing company to retain
its loss carry-forward in case of a change of
ownership while a non-ailing company loses it.
Takeaway
It remains to be seen how the General Court will
decide in the other pending cases and if some of
its Judgments will be appealed against at the
European Court of Justice.
For the time being, the Sanierungsklausel
constitutes State aid in the view of the General
Court.
A particular statutory scheme constitutes a State
aid measure, if it favours certain undertakings or
the production of certain goods in comparison
with other undertakings which are in a legal and
factual situation that is comparable in the light of
the objective pursued by the measure at issue.
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