How do change-of-ownership rules affect the value of loss carryforwards in a majority acquisition?

Change-of-ownership rules: when >50% of the shares are transferred to one acquirer within 5 years, loss carryforwards are forfeited ENTIRELY. On a 25–50% transfer, a proportional reduction (post-2017-reform position). Consequence for M&A valuation: if the target has significant loss carryforwards, their value evaporates completely on a 100% acquisition. Workarounds:

• Built-in-gains exception: the NOL survives to the extent of built-in gains (the difference between book and market value) present in the company.
• Group exception: transfers within the same group are exempt.
• Restructuring exception: the NOL survives in a restructuring — contested under EU law, narrowly interpreted. Valuation pitfall: naive DCF models capitalize loss carryforwards at their full tax-saving value — where the change-of-ownership rule triggers, that can quickly be 5–15% of EV.