Tax & Legal

Düsseldorf Tax Court: Issue of shares as part of corporate action (spin-off) not taxable distribution-in-kind

According to the Düsseldorf Tax Court in a ruling of 29 January 2019 (press release from 2 April 2019), the issue of shares in Hewlett-Packard Enterprise Company (HPE) to shareholders of Hewlett-Packard Company (HPC) did not constitute taxable income.



HPC carried out a corporate action in 2015:  on 31 October 2015 it changed its name to Hewlett-Packard Incorporated (HPI). Subsequently,  on 1 November 2015, it transferred its corporate customer business to a subsidiary, HPE, by way of a so-called “spin-off” . For one old share in HPC, the shareholders received one share in the renamed company HPI and one additional share in HPE. An international agency issued a new international securities identity number (ISIN) for the HPI share.

The plaintiff was a shareholder of HPC. His custodian bank withheld tax on the value of the issue of HPE shares. In his income tax return, the plaintiff claimed that the tax certificate issued by his bank was incorrect. The transaction was a tax-free stock split. The tax office, however, took the view that  the share allotment was taxable as a distribution-in-kind. In this regard the tax office relied on a circular of the Federal Ministry of Finance dated 20 March 2017 (BStBl I 2017, 431).


The tax court took a different view. The allotment of HPE shares is not a taxable event. The special income tax provisions for corporate action had to be applied. The spin-off carried out by HPI was a spin-off within the meaning of those special provisions. This spin-off did not give rise to any taxation at the point when the shares were allotted, because under the special provisions the new shares took the place of the existing shares. Through the application of the relevant special provisions the tax court was able to assume the continuation of the acquisition costs.

In its judgment, the tax court presented a detailed analysis about the concept of ‘spin-off’. In doing so, it contradicted the Finance Ministry’s circular, according to which in the event of a spin-off from a company not domiciled in the EU/EEA area, the ISIN of the spin-off company must be retained. The court did not consider the award of a new ISIN for a company, which had merely been renamed, as harmful.

The Court pointed out that the allocation of shares could become relevant for tax purposes at a later date. A final tax appraisal of the transaction had to be be made when the shares concerned were sold.

Harald Junker, Vice President of the Düsseldorf Tax Court emphasised the broad impact of the ruling: “The question of the tax consequences of the spin-off of Hewlett-Packard Incorporated in 2015 is also likely to be of significance for the corporate actions of other companies and thus for a large number of shareholders. It remains to be seen whether the tax authorities will lodge the appeal – which has been authorised by the tax court – because [the decision] deviates from the Finance Ministry circular.”


Source: Düsseldorf Tax Court decision of 29 January 2019 (Case No. 13 K 2119/17 E): Press release 2 April 2019