German legislator introduces tax exemption for income resulting from debt waivers in restructuring scenarios with retroactive effect.

On 23 November 2018, the German legislator approved legislation regarding tax exemption of cancellation-of-debt-income (COD income) resulting from debt waivers in restructuring scenarios. The tax exemption will apply with retroactive effect to debt waivers effected on or after 9 February 2016 and, upon a specific filing of the taxpayer, to debt waivers effected prior to that date. This Client Alert will outline the background, the preconditions, and the consequences of the newly introduced tax exemption, and provide insight into its application in practice.