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.