Two-stage profit determination for partnership with atypical silent partner

In the case of an atypical non-typical) silent partnership interest in a limited partnership, the tax bases for the “partnership and atypical silent partner” and those for the limited partnership cannot be determined separately and uniformly in a single assessment notice, the Supreme Tax Court said in a most recently published decision.

Background

The plaintiff (a limited partnership with no natural person bearing unlimited liability—GmbH & Co. KG) in which A-GmbH was the general partner and C was the limited partner, made payments to its atypical silent partner (B) who was resident in Italy. The payments consisted of profit shares, interest payments on a loan granted to him, and interest on his clearing account. B, who was involved in the court proceedings, was subject to income tax in Italy on this income. In Germany, the tax office also taxed the interest income as special business income.

There were atypical silent partnerships between the plaintiff and family members of the limited partner, including B. The tax office had issued an amended assessment to the plaintiff regarding the separate and uniform determination of tax bases for 1999, 2000, and 2001 in which all of the plaintiff’s atypical silent partners were included as parties to the assessment in addition to the general partner and the limited partner. In the assessment, the tax office included the interest payments to B as special operating income (special remuneration) in the separate and uniform determination for the plaintiff for the year in dispute.

Decision

The assessment notice cannot stand because it combines findings concerning the plaintiff on the one hand and the atypical silent partnership on the other in a manner that is contrary to applicable law. It must therefore be set aside. As a rule, a separate, independent, and uniform assessment procedure must be conducted for every partnership in which multiple persons meet the criteria for generating income.

If the owner of the business in which another party holds an atypical silent partnership interest is a partnership, as in the case of dispute, the establishment of the silent partnership creates a two-tier partnership structure with the partnership serving as the parent and the atypical silent partnership as subsidiary. The assessment notice for the atypical silent partnership (as the sub-partnership) is binding for the assessment notice issued to the parent company.

Note: The Supreme Tax Court’s decision is obvious- provided one takes the time to read Sections 179 and 180 of the General Tax Code (GTC) carefully:  Section 179 (2) GTC delivers the general rule that tax bases are determined separately if they are attributable to several persons jointly: „A notice of determination shall be issued against the taxpayer to whom the object of the determination is attributable for taxation. Separate determination shall be undertaken uniformly against several participants where this is required by statute or where the object of the determination is attributable to several persons. Where one of these persons participates in the object of the determination solely via another person, a special separate determination may be undertaken.“

Section 180 (1) No. 2 Letter a GTC further bridges the knowledge gap of the legal practitioner by stating that „income which is subject to income tax and corporation tax, and other related tax bases where several persons have a share in the income and the income is attributable for tax purposes to these persons, shall be determined separately (…)“.

Source:

Supreme Tax Court, judgment of 11 March 2026 in the case I R 13/25 (I R 4/13), published on 30 April 2026.