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Tax
12. Jan 2026
WP/StB Daniel Scheffbuch, Triantafillos Tatigiannis

In the case of reorganisations, a free-form application to maintain the book values is possible

Schmetterling und Raupe auf Grashalmen

In the case of reorganisations, hidden reserves can be transferred in a tax neutral way if an application to maintain the book values is filed pursuant to Section 3(2) of the Reorganisation Tax Act (Umwandlungssteuergesetz, UmwStG). For a long time, it was disputed whether a formal application to the local tax office was required for this, or whether this intention could also be inferred from the submitted documents. Following the approval for the free-form application by the tax court of Lower Saxony in 2022 already, the Federal Fiscal Court (Bundesfinanzhof, BFH) has now expressly confirmed this view.

Basic rules under the Reorganisation Tax Act

According to Section 3(1) UmwStG, in the final tax accounts of the transferring legal entity, transferred assets generally have to be recorded at their fair market values. As a result, the hidden reserves are realised and immediately taxed. However, in deviation from this, Section 3(2) UmwStG opens up the possibility, upon application, of recognising the assets at their book values or interim values. It may be advantageous for the transaction to remain tax neutral and an immediate income tax burden to be thus avoided.

Uncertainties regarding the application

The legislation specifies neither the form nor the type of application. An explicit reference to the written form requirement is lacking. Therefore, in the specialist literature the majority view is that a form-free application is possible - it can thus also be communicated verbally or through conclusive conduct (implicitly).

By contrast, the fiscal administration takes a more restrictive view. According to margin no. 03.9 of the Federal Ministry of Finance circular of 11.11.2011, a specific application to the local tax office is necessary. Merely forwarding notarial records or interpreting the accompanying documents are accordingly not sufficient.

Against the backdrop of these conflicting views, it is questionable how the application should be effectively formally structured.

Freedom of form according to tax court rulings …

The tax court of Lower Saxony addressed this issue regarding the form of an application in several cases. The judges had to rule on whether the wording in notarial reorganisation or merger resolutions (“The application for a transfer at book values is hereby made”) is sufficient, or whether a separate letter of application is required.

In its rulings of 25.2.2022 (case reference: 7 K 11215/18) and of 22.12.2022 (case reference: 7 K 105/18), the tax court of Lower Saxony clarified that

  • under Section 3(2) UmwStG the application does not require a specific form.
  • There is no requirement for an explicit application document to be submitted to the local tax office.
  • Including an application clause in notarial reorganisation or merger resolutions can likewise be sufficient as a valid application.
  • Even an implied application is possible, for example, by submitting a balance sheet with book values.

Here, the tax court relied on, among other things, the duty of notaries under Section 54 of the Income Tax Implementing Regulation (Einkommensteuer-Durchführungsverordnung, EStDV), according to which reorganisation resolutions have to be submitted to the local tax office.

… has been confirmed by the BFH

The BFH, in its ruling of 10.7.2024 (case reference: IV R 8/22) confirmed this line of the tax court of Lower Saxony as follows:

  • Under Section 3(2) UmwStG, the application does not require a certain form; the legislation does not contain any provisions concerning the form. The sole determining criterion is making a timely application up to the initial submission of the final tax accounts.
  • A valid application can already be made in the notarial reorganisation resolution if this contains an application clause and, in accordance with Section 54 EStDV, the document is sent to the local tax office.
  • However, a mere agreement between the parties would not be sufficient because a declaration addressed to the tax office would be lacking.

Please note

The BFH has expressly distanced itself from older decisions on Section 3 UmwStG (old version), according to which it was mandatory to exercise this option via the final accounts. The wording, which has been amended since 2006, rather suggests an independent and free-form right of application.

Practical consequences

The decision has now created legal certainty for taxpayers.

  • A separate application is not mandatory.
  • If a notarial reorganisation agreement or merger agreement contains an explicit application clause (“The application for a transfer at book values is hereby made”), then a valid application will have been submitted.

Consequently, an implied application - for example, through the submission of tax accounts with book values - also remains possible.

Conclusion

With its ruling of 10.7.2024 the BFH has finally provided clarity. An application for maintaining the book values in accordance with Section 3(2) UmwStG does not require a certain form and can also be made implicitly. The restrictive view of the fiscal administration is therefore no longer tenable. In order to avoid discussions with the local tax office, making an additional and explicit application to the local tax office could be a sensible course of action.