German legislator finally introduces tax exemption for income resulting from debt waivers in restructuring scenarios with retroactive effect.
On November 23, 2018 the German Federal Council (Bundesrat) approved the Tax Reform Act of 2018 (the “Tax Reform Act”; Gesetz zur Vermeidung von Umsatzsteuerausfällen beim Handel mit Waren im Internet und zur Änderung weiterer steuerlicher Vorschriften), which was passed by the German Parliament (Bundestag) on November 8, 2018.
Bundesgesetz Nr. 286-FZ vom 30. September 2017 über die Einführung von Änderungen des zweiten Teils des Steuergesetzbuches und einiger Gesetzgebungsakte der Russischen Föderation
Hintergrund
Summary
The German Federal Court of Finance (BFH) has recently decided on the tax treatment of profits resulting from debt waived in the course of a company´s restructuring (case file no. GrS 1/15, 28 November 2016).
The BFH:
A recent decision by the German Federal Fiscal Court (BFH) has caused significant concerns in the restructuring community because it will severely complicate future restructurings in Germany or even make them impossible overall. In its decision dated 28 November 2016 (GrS 1/15, published on 8 February 2017) the court held that the so- called restructuring decree (circular on taxation of restructuring profits / Sanierungserlass) dated 27 March 2003 (IV A 6 S 2140 8/03, BStBl. I 2003, 240, amended by circular letter dated 22 December 2009 (IV C 9 S 4140/07/10001-01, BStBl.
The Supreme Court, in a judgment released last Friday,1 has overruled the Court of Appeal by deciding that the IRD stands behind liquidators and employees when cash is available in liquidation and PAYE is owed.
This decision, which upholds the payment waterfall in Schedule 7 of the Companies Act, will be welcomed by insolvency practitioners after the Court of Appeal had upset previous industry practice.
Context
Inland Revenue is now ahead of liquidators and receivers in the queue for payment where cash is available in liquidation and PAYE is owed.
Industry practice has been that PAYE is paid to the Commissioner of IRD only after the insolvency practitioners’ fees and employees’ wages have been paid but the Court of Appeal has accepted the IRD's argument that the Commissioner has first claim.1
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New Zealand in a Nutshell
In Simpson v Commission of Inland Revenue (2012) 25 NZTC 20-119 (CA) the Court of Appeal held that receivers of a mortgagee which is not registered for GST must still account to Inland Revenue for GST on a mortgagee sale. This decision is controversial and pending possible resolution of the matter by an appeal to the Supreme Court, receivers of mortgagees that are not registered for GST should take legal advice as to how they should best proceed.
“...we consider that the section means what it says, and that there is not much point in trying to paraphrase it.” (Supreme Court in Thompson v CIR)