The Hesse Tax Court has decided that the immediate taxation of a contribution gain pursuant to Section 22 (2) of the Reorganization Tax Act in conjunction with Section 17 of the German Income Tax Act violates the EU Merger Directive if it is applied on a general basis to cross-border contributions within a seven-year period. According to the court, this current provision wrongfully presumes an abusive sale of shares and leads to an impermissible retroactive taxation of hidden reserves.
In a recent judgment the Supreme Tax Court decided that the increase in value of shares in a corporation for the purposes of inheritance and gift tax must be determined in accordance with the rules of Section 11 of the Valuation Act. For this purpose, the market value of the beneficiary's share prior the transfer must be compared with the market value of this share after the contribution.
