Tax & Legal

With the entry into force of the Act for the Modernisation of Partnership Law (“MoPeG”) on 1 January 2024, the legislators fundamentally reformed the rules regarding defective resolutions for commercial partnerships (OHG, KG, GmbH & Co. KG). Sections 109–115 of the German Commercial Code (HGB) contain for the first time detailed provisions on resolution procedures and the judicial enforcement of resolution defects.

A shareholder loan granted to an asset-managing partnership is not recognized from a tax point of view insofar as the company's loan liability is attributable to its shareholder for tax purposes (Section 39 (2) no. 2 of the German Fiscal Code). According to a recent decision of the Supreme Tax Court, the loan agreement neither leads to deductible income-related expenses for the borrower nor to income from capital assets for the lender but is rather considered a tax-neutral contribution. This would be different only in the case of commercially active partnerships.

The Federal Constitutional Court held that § Section 6 (5) Income Tax Act providing for the transfer of business assets at book values to be incompatible with the German Basic Law insofar as it rules out a transfer at book value between partnerships with identical shareholding. This exclusion from the tax privilege is incompatible with the general guarantee of the right to equality and thus not justified.

According to a ruling of the Supreme Tax Court, the shareholder (partner) of an asset-managing partnership who has acquired his share for a consideration, can claim depreciation on the jointly owned depreciable assets on a pro rata basis and only in accordance with his acquisition costs and the remaining useful life of the respective asset at the time the share was acquired.

The ECI held that it is from the outset not compatible with EU-Law if the possibility for a partnership to form a VAT group - in addition to the controlling company – is limited to those partners in the partnership whose business is financially integrated into that of the parent. Such a restriction can only be justified by a specific need to prevent abuse.

Where an insolvency practitioner prepares an annual balance sheet, his claim to a payment-on- account is to be treated as a part of the final fee and does not lead to a realisation of profits upon receipt.

An ECJ advocate general has suggested that management holding companies be allowed an input tax deduction in proportion to the taxable/total turnover of their subsidiaries and that partnership subsidiaries should not be excluded from joining a VAT Group.

The ECJ has held that a German tax consultant cannot deduct the input tax on the acquisition of an intangible from one partnership for use by another for lack of his own economic activity.

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.

The finance ministry has published a discussion draft decree on the tax treaty treatment of partnerships. Comments are invited by December 2, 2013.

The Supreme Tax Court has held that an unlimited partner's fee for management, representation and for liability for the partnership's debts is subject to VAT as a single supply.