Since the wording of Section 27 (7) of the German Corporation Tax Act does not cover estates, private foundations under civil law with legal capacity are not eligible for the specific determination of the special tax contributions account which is necessary to establish the amounts of tax neutral repayments of capital contributions. This was decided by the Supreme Tax Court in two similar cases. Contrary to the view held by other local tax courts the Supreme Tax Court gives precedence to the strict wording of the law.
In a recent ruling, the (lower) Tax Court of Hamburg decided that the disproportionate contribution to the free capital reserve of a partnership limited by shares is not a transaction that is subject to gift tax.
The Supreme Tax Court has followed its previous case law in holding that a company financed by subordinated shareholder loans may not take up a liability until the conditions for repayment are met. However, the subordination is a shareholder’s capital contribution to be taken to capital reserve rather than income to the extent the debt had value as an asset at the time.
The Supreme Tax Court has held that distributions to shareholders may only rank as a (tax free) return of a capital contribution if they do not exceed the balance brought forward at the beginning of the year.
