Updates on the interest barrier pursuant to Section 12a KStG: Insight into the draft of the non-climate-damaging infrastructure projects regulation

The most recent review draft of the non-climate-damaging infrastructure projects ordinance specifies the conditions under which an infrastructure project that meets the general requirements of Section 12a para. 9 KStG is not considered harmful to the climate. This is relevant for the interest barrier when determining the interest surplus or taxable EBITDA. The regulation applies for the first time for financial years beginning after December 31, 2020.

With the introduction of the COVID-19 Tax Measures Act, the interest barrier was integrated into Section 12a KStG in accordance with the EU legal requirements of Art. 4 ATAD. This regulation, which came into force on January 1, 2021, limits the deductibility of interest expenses. The net interest surplus is limited to up to 30% of taxable EBITDA. An allowance of EUR 3 million serves as an additional cushion.

An in-depth look at Section 12a KStG and its exceptions: The German Corporation Tax Act (KStG) contains various regulations on the taxation of corporations. A particularly interesting and relevant section is Section 12a KStG, which deals with the so-called “interest barrier”. This regulation limits the deduction of interest expenses under certain circumstances.

One of the notable exceptions to this rule can be found in § 12a para. 9 KStG. This paragraph deals specifically with interest expenses used to finance long-term public infrastructure projects within the European Union (EU). It is important to emphasize that these projects must be of general public interest to qualify for this exemption.

What does that mean in concrete terms? If a company has interest expenses that are directly related to the financing of such public infrastructure projects, these expenses are exempt from the interest barrier. This means that these interest expenses are not neutralized when calculating the taxable EBITDA (earnings before interest, taxes, depreciation and amortization). As a result, companies that invest in such projects can enjoy tax advantages, as their interest expenses are not limited by the interest barrier.

In addition to this exemption for interest expenses, it is also important to note that the income associated with these specific infrastructure projects is also excluded. This ensures that companies investing in such important public projects are not taxed twice and thus encourages investment in projects of public interest within the EU.


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