In general, the German Federal Fiscal Court (Bundesfinanzhof) shares the view that the minimum taxation rules are in line with constitution (Grundgesetz) (e.g. BFH v. 20.09.2012, IV R 36/10, BStBl. II 2013, 498).  However, in cases where losses cannot be credited against future profits, the minimum taxation rule, i.e. the denial of deduction of all losses (without limitation) seems to be in conflict with the constitution (BFH v. 26.02.2014, I R 59/12).  Therefore, the German Federal Fiscal Court has forwarded the aforementioned case to the Federal Constitutional Court (Bundesverfassungsgericht) for the Federal Constitutional Court to decide (File reference at Federal Constitutional Court 2 BvL 19/14) whether the minimum taxation is in line with the German constitution (Sect. 10d Para. 2 Sentence 1 Income Tax Act, Sect. 10a Sentence 2 German Trade Tax Act).

Our recommendation

As there are good reasons to believe that the German Constitutional Court will come to the conclusion that the minimum taxation rule is in conflict with the German constitution in cases where losses cannot be credited against future profits anymore, e.g. in the case of a liquidation, we recommend filing an objection against any tax assessments which deny the utilisation of tax losses which cannot be credited against future profits.