Berlin—The global law firm Dentons convinced the Supreme Tax Court in a revision proceeding that the so called minimum profit taxation is an infringement of art. 3 of the national constitution and is thus unconstitutional. The Supreme Tax Court has therefore stopped the proceeding and will according to art. 100 paragraph 1 of the national constitution obtain the decision of the Federal Constitutional Court. In previous proceedings on the minimum profit taxation the Supreme Tax Court had judged them as basically being in compliance with the constitution.

The decision was based on a case in which a real estate development company had to depreciate a claim to zero, since the debtor had disputed the existence of the claim which led to a loss and subsequent bankruptcy of the company. Two years later the claim of the insolvency administrator was allowed for in second instance. Due to the resulting write-up on the claim, a profit in the amount of the previous loss accrued. As a result of the minimum profit taxation the company had to pay several million corporation and trade tax on 40 % of that profit – although across accounting periods no profit had accrued.

Beyond the so called basic amount of 1 million €, the minimum profit taxation does only allow for an utilization of losses up to 60 % per year. Due to the bankruptcy, the remaining loss carry forward could not be used by the company any more. The minimum profit taxation thus leads to taxes being paid on a fictitious profit. This could have been avoided if the claim had not been contested and the action would have been finally allowed for the very same year.

The written reasons of the decision will probably be available in 3 months.

Representative of the plaintiff:
Dentons (Berlin): Dr. Stephan Busch (Partner, Head of the German Tax Division)

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