Federal Constitutional Court confirms constitutionality of the minimum profit taxation
On August 11, 2025, the Federal Constitutional Court (BVerfG) published a sensational decision regarding whether the legal provisions on the so-called minimum profit taxation in corporate income and trade tax law are compatible with the requirements of the Basic Law (Case No.: 2 BvL 19/14). This decision has far-reaching implications for companies of all sizes as well as for individuals who directly or indirectly hold shares in corporations.
Background of the minimum profit taxation
The provisions on minimum profit taxation are intended to generally enable companies to offset losses, while regulating this through temporal and monetary restrictions. Thus, loss carryforwards from years with low earnings can only be transferred to subsequent profitable years within certain legal limits. The aim of this regulation was to prevent tax reductions resulting from the unlimited carryforward of losses and thereby contribute to tax stability.
Constitutional review by the BVerfG
Purpose of the referral
The procedure was based on the question of whether the existing limitations on the offsetting of loss carryforwards violate the principle of equality under Article 3(1) of the Basic Law or other fundamental rights guarantees. The main focus was whether the minimum taxation leads to an unjustified unequal treatment of taxpayers who generate profits and losses in consecutive years. In addition, it was discussed whether the regulations are compatible with the principle of ability to pay, the protection of legitimate expectations, and the prohibition of retroactivity.
Considerations of the court
The Federal Constitutional Court emphasized that the legislator has broad discretionary powers in designing the tax loss offsetting rules. The restriction of unlimited loss offsetting is particularly justified by the aim of securing the tax base and preventing abusive arrangements. Furthermore, it is not apparent that the relevant regulations lead to a disproportionate burden, since a basic amount of loss offsetting always remains available for tax purposes.
The norms also presented no constitutional concerns in formal terms. The limitations are transparently regulated, and the overall legal situation is predictable and calculable. In addition, the principle of the rule of law is not impaired by the way the regulations are designed.
Practical significance for companies and investors
The BVerfG’s decision provides companies and shareholders with increased legal certainty in tax planning and structuring. Losses can, as before, generally only be offset with profits to a limited extent in future years. Companies should be aware of the impact of this decision, as the continuing statutory provisions may have significant financial implications, especially in years of extraordinary profit fluctuations.
For capital-based companies, the utilization of losses remains highly significant, particularly in the context of restructurings, company transfers, or financing rounds. Proper documentation and claiming of loss carryforwards as well as monitoring threshold values remain essential.
Implications for future legislation and case law
With this judgment, the case law on tax loss offsetting has been further consolidated. The legislature now has a legitimate basis to retain the existing tax restrictions in the future or to adjust them selectively. Nevertheless, it remains to be seen whether legislative changes in response to economic developments or European legal requirements will become necessary.
Since the judgment explicitly refers to the current legal provisions, there remains scope for future challenges should the economic or legal framework conditions change.
Conclusion
With its decision of August 11, 2025, the Federal Constitutional Court has clarified that minimum profit taxation is in accordance with the Basic Law. Companies and shareholders must continue to plan with the existing restrictions on the use of loss carryforwards. Overall, the ruling affirms the importance of stability and predictability in tax law.
For companies, investors, or private individuals who have further legal questions regarding the implications or implementation options of minimum profit taxation or who seek support in this context, the lawyers of MTR Legal Rechtsanwälte, as a nationally and internationally active commercial law firm, are always available for personal contact.
