No flat-rate holding company discount when the net asset value method is applied
When determining the value of shares in unlisted corporations for gift tax purposes it is generally difficult to derive a fair value - especially in the case of indirect stakes in holding companies. The Federal Fiscal Court (Bundesfinanzhof, BFH) has now clarified that applying a flat-rate holding company discount to the net asset value is not permitted if this cannot be specifically and objectively established.
The case underlying the BFH ruling of 25.9.2024 (case reference: II R 49/22) concerned a father who had gifted several stakes in a family holding company to his children. For gift tax purposes, the value of the stakes of the company was derived from over 60 sales of other shareholdings in the last 12 months prior to the gifting. The sales of the shareholdings had taken place mainly between distantly related members of the family. The selling prices were based on the net asset value that had been determined by the internal company tax department - however, a holding company discount of 20% had been deducted from this. The reason given to justify this discount was the lower fungibility and the restricted saleability of such shareholdings.
The local tax office admittedly approved the assessment of the value that had been determined on the basis of the net asset value method, however, the deduction of the holding company discount was not allowed. The BFH endorsed the view of the fiscal administration. Fair value is admittedly basically applicable (Section 11(2) of the German Valuation Act); although, in a typically pertinent valuation context where there is no stock market listing the net asset value is acknowledged to be appropriate. Nevertheless, a flat-rate discount on this value is not permitted.
According to the established case law of the supreme court, the discounts that are applied in order to determine the fair value must be objectively and specifically related to the respective subject of the valuation. In the present case, the discount had not however related to the stakes that were sold in each case, but had remained unchanged at the flat rate of 20% over a long period of time. Furthermore, according to the company, the discount is primarily supposed to reflect the fact that due to the internal restrictions stakes in a holding company are more difficult to sell than company shares.
