New Federal Ministry of Finance circular on the transfer of partnership interests for no consideration
Revisions to reservation of usufruct
In the BMF circular, transfers where usufruct is reserved are discussed within the material scope of application for the first time. Accordingly, the reservation of a usufruct is not an obstacle to the rollover of book values. The transfer of a partnership interest under reservation of usufruct falls under Section 6(3) EStG if the new interest holder becomes a co-partner. The same would thus likewise apply to the transfer of a part of a co-partner’s stake. By contrast, there would be no tax concessions for the transfer, for no consideration, of an individual commercial enterprise leased in its entirety under reservation of usufruct.
Clarification of treatment of essential special functional business assets
Section 6(3) clause 1 EStG presumes that, besides the share of the joint assets, all of the economic assets in special business assets that are of importance for the functioning of the business, on the transfer date, are indeed transferred.
If, at the time of the transfer of the share of the joint assets, the so-called special business assets that are essential for operations are retained and simultaneously, or on the same day, conveyed to the transferor’s private assets then a rollover of book values would not be permitted because, at the time of the withdrawal, the special business assets that are essential for operations will have still been in the transferor’s business assets and, in the case of such a constellation, precisely not all of the essential business assets of the existing operation, which are still available at the time of the transfer, would have been transferred. Such cases would be deemed to be terminations of business with standard concessions.
Abandonment of the overall plan view
A radical change and thus a key aspect of the new BMF circular, in accordance with the supreme court ruling, is the abandonment of the overall plan view for the simultaneous transfer of partnership interests pursuant to Section 6(3) EStG and special business assets pursuant to Section 6(5) EStG. Accordingly, it is not an obstacle to the rollover of book values if economic assets that are essential for operations that are held as special business assets are conveyed, simultaneously or close in time, to the taxpayer’s other business assets and/or special business assets. Although, the enterprise may not be broken up as a result. The simultaneous use of both tax-neutral privileges presumes that a functioning operating entity will continue to exist and that the taxation of hidden reserves will be ensured.
Furthermore, it would no longer be detrimental from a tax point of view if, on account of a common plan, prior to the date of the transfer of the share of the joint assets, business assets or special business assets that are essential for operations were either withdrawn (e.g. transferred to a relative for no consideration) or sold at their fair market value while realising hidden reserves. However, this requirement would in turn be subject to the condition that the remaining transferred business assets would have to constitute a functioning operating entity.
Conclusion: From a practical point of view, it is a welcome development that case law that has been settled for years will now be adopted by the fiscal authority. This applies especially to the judgements where the BFH had ruled against the opinions held by the fiscal authority. Consequently, in the context of consulting on structuring, the legal certainty in cases of transfers will increase.