Even though the Grand Coalition at the federal level did not officially come into being until members of the SPD decided in favor of it on December 16, 2013, the German parliament already had passed the current legislative period’s first tax law with a vote by the Bundestag on November 28, 2013 and by the Bundesrat on November 29, 2013.
The law we are referring to is the AIFM Tax Adjustment Act. Yes, this law had been introduced into the legislative process in the previous period. However, because the Bundestag and the Bundesrat could not come to an agreement in the summer, it ultimately failed pursuant to the discontinuity principle. The discontinuity principle requires that any legislation still pending at the end of a parliamentary term be dropped.
Under the leadership of North Rhine-Westphalia, a group of states proposed legislation having substantially similar content on October 24, 2013.
Like the original bill, the recently passed law contains a provision prohibiting the recognition of hidden liabilities when provisions are sold or transferred within a corporate group. Only 1/15 of the business expenses resulting from the sale or transfer can be charged to expense immediately, with the remainder deductible in subsequent years in annual increments of 1/14 (Sec. 4f EStG [Income Tax Act]). In the first set of tax accounts prepared following the acquisition, the entity acquiring the provisions must recognize them as liabilities in the amounts that were tax-relevant for the previous debtor. This results in a gain on acquisition, 14/15 of which can be placed in a tax-exempt reserve. This reserve, in turn, generally must be reversed into income in the amount of 1/14 per year (Sec. 5 (7) EStG).
The provision pertains not only to intragroup transfers, but also to transfers to third parties, especially of partnership interests. In principle, the new rules first take effect for fiscal years ending after November 28, 2013. If an entity’s fiscal year is the same as the calendar year, they are thus already mandatory for 2013 and apply to any transfers made since January 1, 2013.