In a recently published judgment, the Supreme Tax Court decided in a case involving the transfer of a limited partnership to the sole remaining limited partner in the legal form of a limited liability company (GmbH) by way of universal succession through accrual, among other things, that the limited partner's allowable loss determined at the time of termination within the meaning of Section 15a (4) of the Income Tax Act can be offset by the limited limited company against its future profits.
The Supreme Tax Court has held that rental income earned through a Hungarian partnership is not automatically exempt as the income from a foreign permanent establishment, merely because the partnership was taxed locally as a corporation, or because the income would have been treated as trading income had it been earned through a German partnership.
In a recently published decision, the Supreme Tax Court held that the profit from the sale of a limited partnership share which is proportionally encumbered with an atypical sub-participation is fully subject to trade tax.
In a decision published in March 2017 the Supreme Tax Court held that - in the case of a two-tier partnership structure – the interest expense of the Dutch partner holding only an indirect share in a German limited partnership is nevertheless tax deductible when computing his limited German tax liability resulting from his investment in the German partnership.
In a most recent decision, the Supreme Tax Court held that profits from special compensation for the general partner of a limited partnership pursuant to Section 5a (4a) sentence 3 Income Tax Act attributable to the period following the cessation of the commercial and promotional activity of a partnership are not part of the trading profit subject to trade tax.
The remuneration paid to managing directors for the management of a partnership limited by shares (KGaA) must be added back for trade tax purposes even where the KGaA concluded an employment contract directly with the managing directors who each are limited partners of a limited partnership (GmbH & Co. KG), which itself is the general partner of KGaA (the plaintiff). According to the Supreme Tax Court, such "third-party employment" does not reduce the amount of add-back when determining the KGaA's trading income if the KG is entitled to a corresponding claim for compensation by its articles of association.
The European Court of Justice held that a German resident company (limited partnership) has no establishment for VAT purposes in Romania under a service contract with a Romanian group company. The court also addressed the question of the place of performance under the circumstances in the case referred.
The Supreme Tax Court has held that the interest income of a German-owned limited partnership in England is taxable in Germany as interest, and not exempt as trading income. The capital gain on the sale of the property is not exempt as taxable in the UK, merely because of the capital allowance claw-back.
The loss forfeiture rules of Section 8c of the Corporation Tax Act in the version valid for 2014 are not applicable to deductible losses which are allocated to a corporation as partner of a limited partnership pursuant to Section 15a Income Tax Act. With this decision, the Supreme Tax Court contradicts the view of the tax administration.
The fact that a commercial limited partnership (KG) receives income ranking as business income because of the so called „tainting effect“ does not preclude the partial write-off of a worthless loan owed to its partner if the principles of corresponding accounting between partnership and the partners no longer apply because of the discontinuation (cessation) of the business of the KG. Unlike the tax court of first instance, the Supreme Tax Court allowed the loss from the partial write-down to be recognized already at the time of the cessation of the business activities.
In a case involving a charge to real estate transfer tax (RETT), the Supreme Tax Court granted the taxpayer interim relief in the form of a suspension from execution (i.e. a delayed tax payment), as the question arose as to whether one of the parties to the transaction, a letterbox company, had legal capacity.
The Supreme Tax Court has decided that a gain arising from a share disposal can be rolled-over on a tax-neutral basis under Section 6b Income Tax Act where the privileged asset has been sold to a related entity. However, the Court also ruled that the part of the gain attributable to the write-up of the privileged asset – where the earlier write-down of the shares had reduced the taxable profits -could not be rolled over as a tax-neutral transfer under section 6b of the Income Tax Act.
The Düsseldorf Tax Court has decided that a so-called bond stripping model involving a partnership limited by shares (KGaA) as a shareholder in a Luxembourg Société d’Investissement à Capital Variable (SICAV) constitutes an abuse of legal form under Section 42 of the German General Tax Code (Abgabenordnung). Does this really mark the end of the legal proceedings that have been ongoing since 2018?
The Supreme Tax Court has asked the ECJ for a ruling on the determination of the amount of deductible input VAT of holding companies with taxable outputs and on the conditions for joining VAT groups.
A continuous and retroactive financial integration is also possible where a change in shareholder takes place during the year. The Lower Tax Court of Duesseldorf held that a fiscal unity or tax consolidation group for corporation income tax may be established already for the whole year in which the exchange of shares took place. In its judgement the court disagrees with the tax authorities’ official opinion on this issue. The Supreme Tax Court is now in charge and must finally decide the dispute.
The Supreme Tax Court has held that a closed private equity/venture capital fund is a trading venture taxable in its country of establishment. If it is exempt there by reason of local regulation, its income does not revert to German taxation by virtue of treaty or statutory provisions on conflicts of qualification.
In a most recently published decision, the Supreme Tax Court held that the transfer of the tax privilege for business assets, rented residential property and family homes among co-heirs requires that the assets are conveyed in the course of the division of the estate. The transfer would not be privileged if the decision to divide the estate and thereby transfer preferential (business) assets in exchange for non-preferential assets is based on a new decision of the community of heirs, when initially they deliberately left the estate undivided.
When determining whether a corporation with a direct interest in the partnership owning real estate is considered a new shareholder within the meaning of Section 1 (2a) sentence 4 of the Real Estate Transfer Tax Act because at least 90% of the shares are transferred to new shareholders, only the shareholding in the corporation must be taken into account. In a most current judgment, the Supreme Tax Court held that a previous participation of the new shareholder of the corporation in the partnership owning the real estate is irrelevant in this respect.
The remuneration for waiving a right of usufruct to a private property is taxable as compensation in accordance with Section 24 No. 1 letter a of the Income Tax Act (ITA) if the owner of the usufruct right at the time of the waiver has actually leased the property and earned taxable income from rental and leasing. According to a recent decision of the Supreme Tax Court, this applies irrespective of whether the taxpayer receiving compensation for lost or foregone income was under legal, economic, or actual pressure at the time the agreement for waiver was concluded.
