German law to allow start-ups to claim tax breaks on losses

Germany’s government plans to
allow start-ups to claim tax breaks on losses even after a
change in ownership in a bid to boost investment into fledgling
firms, a copy of a draft law seen by Reuters on Tuesday showed.

The draft law is expected to be approved by the German
cabinet on Wednesday and would cost the finance ministry around
600 million euros ($674 million) per year in lost tax revenue,
according to the document.

Currently, losses suffered under a previous owner cannot be
used by new investors to reduce a start-up’s tax liability.
Under the new rules, investors will be able to claim the tax
breaks provided the business continues to operate.

This is to prevent companies being bought and gutted solely
to take advantage of the tax breaks on losses carried forward.

German start-ups already struggle to raise funds when
compared with their U.S. peers due to a shortage of venture
capital, especially for later stages of growth.

While the number of financing rounds increased in Germany in
the first half of 2016, the total value of investments tumbled
by more than 50 percent to 957 million euros, according to a
study by consultants EY.

Mittelstand companies, the small-to-medium-sized firms that
form the backbone of the German economy, will also benefit from
the legislative changes.

The Foundation for Family Businesses welcomed the new rules,
saying it would make restructuring easier and increase
flexibility needed for firms to compete internationally.

The new law is expected to apply retroactively from Jan. 1,
($1 = 0.8902 euros)

(Reporting by Matthias Sobolewski; Writing by Caroline Copley)

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