To date, a debt waiver has been frequently used as a tool to successfully restructure German-based companies in financial difficulties.
A decision of the German Federal Fiscal Court (Bundesfinanzhof) published on February 8, 2017 currently limits the debt waiver option. The court held that one of the main instruments used by tax authorities to grant relief from an otherwise taxable cancellation of debt income (CODI) — in the form of the so-called Restructuring Decree (Sanierungserlass) — violates fundamental constitutional rights. Less than one month after the publication of the decision, a new bill addressing tax exemptions in restructuring scenarios has been introduced into the legislative process.
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