Press Release: State aid: Commission partly authorises German tax law on risk capital, subject to amendments

The European Commission partly authorised, under EC Treaty state aid rules a German Law to Modernise the General Conditions for Capital Investments (MoRaKG). The Commission found that the positive impact of income tax benefits for private investors that provide risk capital to companies that need it would clearly outweigh potential distortions of competition brought about by the aid. The Commission therefore authorised the proposed tax benefits for private investors under certain conditions and requested Germany to bring them into line with the Commission's Risk Capital Guidelines. However, the Commission found that proposed provisions concerning business tax breaks for Venture Capital Companies (VCC) and the right of Target Enterprises (TE) acquired by VCCs to carry forward losses, were incompatible with the Risk Capital Guidelines and with the principle of freedom of establishment (Article 43 of the EC-Treaty). In particular, these provisions would require beneficiaries to have their domicile in Germany and provide an unfair competitive advantage to certain companies over their competitors. The Commission therefore concluded that business tax benefits and loss carry forward provisions in favour of VCC and TE were incompatible with the Single Market and could not be implemented.