Essentially, the Bundesrat is suggesting two measures, one to help companies, particularly those in the middle market, ease their way out of difficulty caused by high leverage, and one to improve the chances of those in serious trouble but with a viable recovery plan of finding a new investor. Both measures are intended as reactions to the present economic crisis and both are to be valid for the period 2008-2010 only.

The first suggestion relates to thin capitalisation. The German thin capitalisation rules are quite tight. Therefore it is now suggested to increase the interest limitation threshold from 1m to 3m euro, resulting in companies being able to deduct interest due on related party loans up to an amount of 3m euro instead of only 1m euro per year. This would enable most middle-market companies to enlist shareholder and related-party support in borrowing the funds needed to maintain liquidity until the critical period has passed. The purpose is to help companies facing a temporary squeeze without suffering long-term damage. As the proposal stands, the existing interest limitation of 1m euro will be re-established in 2011, thus the additional borrowing will have to be repaid by then, to avoid a tax disadvantage.

The other measure is aimed at companies looking for new investors to help them reorganise their operations. The loss relief forfeiture rules on a change of shareholders (in proportion to the new shareholding of between 25 percent and 50 percent; full forfeiture if more than 50 percent of the shares are acquired) are to be suspended during the 2008-2010 period for share acquisitions as part of a rescue operation. As a result tax loss carry forward amounts will remain available after a change in ownership in a company. The rescue operation must meet at least one of the following three criteria:

1. The company adheres to an agreement to be made with the company works council to maintain employment levels,

2. The total wages paid in the five years following the acquisition is at least 400 percent of the annual average over the five years preceding the acquisition (does not apply to companies with no more than ten employees), or

3. The company receives an injection of new capital within twelve months after the acquisition at least equivalent to 25 percent of the gross assets as shown in the prior year's balance sheet. If the acquisition is less than 100 percent, the required amount of new capital is reduced accordingly. A rescue operation will not be seen as such, and the concession protecting the loss relief will be withdrawn in retrospect, if the company changes its line of business within five years of the acquisition.

Although the above measures are currently only proposals, it is clear that Germany intends to ease of local companies in distress.