The Hamburg Fiscal Court (Finanzgericht Hamburg, “FG Hamburg”) has recently supplemented its referral order (Vorlagebeschluss) of 2017 (docket no. 2 K 245/17) concerning the judicial review proceedings by order of 17 March 2026 with respect to the facts of the case, the submissions of the parties and the relevance to the decision (Entscheidungserheblichkeit). It remains to be seen whether the BVerfG will reach a decision in the judicial review proceedings, which have been pending for almost nine years, in a timely manner.
1. Background: Sec. 8c KStG and previous case law
The subject-matter of the judicial review proceedings pending before the BVerfG is Sec. 8c KStG, introduced on January 1, 2008, which in certain cases of share acquisition (Beteiligungserwerb) in corporations results in the complete forfeiture of tax losses.
In its decision of March 29, 2017 (docket no. 2 BvL 6/11), the BVerfG held that the pro-rata loss forfeiture provision (anteilige Verlustuntergangsregelung) of Sec. 8c sentence 1 KStG in the version of the UntStRefG 2008 was incompatible with the general principle of equality (allgemeiner Gleichheitssatz) under Art. 3 para. 1 of the German Constitution (Grundgesetz, GG) for the period from January 1, 2008 to December 31, 2015. The legislature subsequently repealed this provision by Act of December 11, 2018 (German Federal Law Gazette I (Bundesgesetzblatt I) 2018, p. 2338) without replacement.
To date, it remains unclear whether the complete loss forfeiture provision (vollständige Verlustuntergangsregelung) – the former provision of Sec. 8c sentence 2 KStG, now Sec. 8c para. 1 sentence 1 KStG – is compatible with the general principle of equality. The FG Hamburg referred this question to the BVerfG by order of 29 August 2017 (docket no. 2 K 245/17).
The FG Hamburg based its serious doubts regarding the constitutionality on essentially the same arguments on the basis of which the BVerfG established the unconstitutionality of the pro-rata loss forfeiture provision:
- The unequal treatment of loss-bearing corporations (Verlustkörperschaften) with and without a detrimental change in shareholders (schädlicher Anteilseignerwechsel) can be justified neithe
- by the targeted avoidance of a typical case of abuse, nor
- by the loss of economic identity (wirtschaftliche Identität) of the loss-bearing corporation.
In many cases, the provision does not capture the case of abuse, but rather an economic normal case.
The loss of economic identity of a loss-bearing corporation cannot be defined and normatively captured solely by the criterion of the transfer of more than 50 % of the shares in a loss-bearing corporation. While a majority stake combined with a majority of voting rights enables the shareholder to exert direct influence on the affairs of the loss-bearing corporation and thus also on a potential utilization of the losses, the mere possibility of exerting influence does not render the loss-bearing corporation a different entity per se.
Supplementary Order of the FG Hamburg of March 17, 2026
By order of March 17, 2026, the FG Hamburg has supplemented and specified the content of its referral order of 2017. This provides greater clarity as to the specific case underlying the judicial review proceedings and the tax law consequences at issue.
The initial case in brief
A corporation had tax loss carry-forwards. The previous shareholder sold initially 20% of the shares in 2006 and the remaining 80% in 2008 to an acquirer. This resulted in an overall acquisition of more than 50% of the shares within a five-year period that had commenced before January 1, 2008. The law contains specific transitional provisions for precisely such cases.
Transitional law—interaction of Sec. 8c KStG and Sec. 8 para. 4 KStG (old version)
For this “old-new” constellation, Sec. 34 para. 6 KStG in the version of the UntStRefG 2008 applies. In simplified terms: In addition to the new loss forfeiture provision of Sec. 8c KStG, the previous provision of Sec. 8 para. 4 KStG (old version) is also to be applied under certain requirements.
The previous provision of Sec. 8 para. 4 KStG (old version) defined the loss of economic identity—and thus the forfeiture of loss carry-forwards—not solely by reference to a change in shareholders, but “in particular” by reference to the following requirements:
- transfer of more than half of the shares
- contribution of predominantly new business assets (Betriebsvermögen) and
- continuation of business operations (Fortführung des Geschäftsbetriebs) using these new business assets.
Only where these requirements were cumulatively met was a loss of economic identity to be assumed, resulting in the exclusion of the remaining loss deduction (Verlustabzug).
Assessment of the specific case by the FG Hamburg and the parties
In its supplementary order, the FG Hamburg notes that both the claimant and the respondent are of the view that economic identity was not lost according to Sec. 8 para. 4 KStG (old version) in the initial case. This is justified on the basis that the business operations were not continued with predominantly new business assets. Accordingly, the requirements for a loss forfeiture under the previous law were not satisfied.
The FG Hamburg also reaches this conclusion in its supplements under section B.I “Application of Sec. 8c sentence 2 KStG (old version) in the case at hand and legal development”:
- The losses had not already been forfeited pursuant to the transitional provision (Sec. 34 para. 6 KStG) in conjunction with Sec. 8 para. 4 KStG (old version).
- This leaves an unused loss to which Sec. 8c sentence 2 KStG (old version) (now Sec. 8c para. 1 sentence 1 KStG) is to apply.
Why is this supplement by the FG Hamburg important?
By its supplementary order, the FG Hamburg clarifies that, in the initial case, the losses are not already forfeited under the previous law. The decisive factor for the loss forfeiture is solely the complete forfeiture of tax losses under Sec. 8c para. 1 sentence 1 KStG. Accordingly, this provision alone is the focus of the constitutional review by the BVerfG. The matter does not concern a marginal case (Randfall) of transitional law, but rather the question of whether the complete loss forfeiture under Sec. 8c para. 1 sentence 1 KStG is compatible with Art. 3 para. 1 GG in practice.
3. Key constitutional questions to be answered by the BVerfG
The BVerfG faces, in particular, two key questions in the pending judicial review proceedings:
(1) Anti-avoidance
Does Sec. 8c para. 1 sentence 1 KStG capture in a targeted and realistic manner the typical case of abuse (typischen Missbrauchsfall) that the legislature intended to counteract?
(2) Economic identity
Does the complete loss forfeiture in the event of an acquisition of more than 50 % of the shares typically capture the loss of economic identity of the loss-bearing corporation?
Both aspects may constitute objective justifications for the unequal treatment of corporations with and without a detrimental share acquisition (schädlicher Beteiligungserwerb).
Furthermore, the question arises whether and to what extent the BVerfG, in reaching its decision, will also address the relief provisions (Verschonungsregelungen) introduced at a later date, in particular:
(a) the reorganization clause (Sanierungsklausel) within the meaning of Sec. 8c para. 1a KStG, applicable to detrimental acquisitions of shares after December 31, 2007
(b) the group clause (Konzernklausel) within the meaning of Sec. 8c para. 1 sentence 4 KStG
(c) the hidden reserves clause (Stille-Reserven-Klausel) within the meaning of Sec. 8c para. 1 sentences 5 through 8 KStG (each applicable to acquisitions of shares after December 31, 2009, cf. Sec. 34 para. 6 sentence 2 KStG) and
(d) the continuity-bound loss carry-forward (fortführungsgebundener Verlustvortrag) within the meaning of Sec. 8d KStG, applicable to detrimental acquisitions of shares after December 31, 2015 (cf. Sec. 34 para. 6a sentence 1 KStG)
It would be conceivable that these relief provisions would reduce the scope of application of the complete loss forfeiture to such an extent that Sec. 8c para. 1 sentence 1 KStG may still be considered compatible with Art. 3 para. 1 GG.
Practical implications
Keeping assessment notices open and applications for suspension of enforcement
Owing to the serious doubts as to the constitutionality of Sec. 8c para. 1 sentence 1 KStG arising from the pending judicial review proceedings, the BFH granted suspension of enforcement (Aussetzung der Vollziehung, AdV) of corresponding loss determination notices (Verlustfeststellungsbescheide) by order of April 12, 2023 (docket no. I B 74/22 (AdV)), insofar as these are based on Sec. 8c para. 1 sentence 1 KStG.
We therefore recommend to keep open all assessment notices (Bescheide) that take into account detrimental acquisitions of shares within the meaning of Sec. 8c para. 1 sentence 1 KStG (by filing an objection, applying for the proceedings to be stayed and, where appropriate, applying for a suspension of enforcement in order to avoid liquidity burdens pending the decision of the BVerfG).
Response of the tax authorities
The tax authorities responded to the suspension order of the BFH with a non-application decree (Nichtanwendungserlass) of November 20, 2024 (German Federal Tax Gazette I (Bundessteuerblatt I) 2024, p. 1640). According to this, the suspension order of the BFH is not to be applied beyond the decided case for acquisitions of shares before December 31, 2015.
An exception is only provided where the applicant demonstrates and substantiates a particular legitimate interest in the suspension or reversal of enforcement to which the tax authorities may, on a case-by-case basis, accord priority over the public interest in enforcement. Furthermore, the tax authorities take the view in the non-application decree that, since the introduction of Sec. 8d KStG with effect from January 1, 2016, there are no longer serious doubts as to the constitutionality of Sec. 8c para. 1 sentence 1 KStG.
Potential fiscal implications
A decision of the BVerfG in favor of taxpayers could have significant fiscal implications. This is demonstrated by the development of corporate tax loss carry-forwards (körperschaftsteuerliche Verlustvorträge) as reflected in the corporate tax statistics (Körperschaftsteuerstatistik) published by the Federal Statistical Office (Statistisches Bundesamt) (most recently the corporate tax statistics for 2021). The scale and amount of existing loss carry-forwards make clear that the decision of the BVerfG will have significance far beyond the individual case.
5. Outlook
The judicial review proceedings concerning Sec. 8c para. 1 sentence 1 KStG are expressly listed as planned decisions in the Annual Preview 2025 and 2026 of the BVerfG. The supplementary order of the FG Hamburg of March 17, 2026 has additionally brought movement to the proceedings.
Pending the decision of the BVerfG, we recommend to:
- systematically identify relevant cases
- keep legal remedies open or review them and
- provide differentiated reasons for applications for suspension of enforcement—in particular in light of the restrictive position of the tax authorities in the non-application decree.
The decision of the BVerfG is eagerly awaited—both in tax advisory practice and from a fiscal perspective. It is likely to set the course for how far the legislature may go in limiting the loss deduction under Sec. 8c and Sec. 8d KStG.
