Termination of a two-tier German limited partnership (KG) through accrual - Loss utilisation is still possible
If there is an accrual of the assets of a limited partnership (Kommanditgesellschaft, KG) to the last remaining limited partner that is organised in the legal form of a limited liability company (Gesellschaft mit beschränkter Haftung, GmbH), then this would normally be the subject of an external tax audit by the local tax office. This would then apply, in particular, if the intention is to subsequently take into account the losses pursuant to Section 15a of the Income Tax Act (Einkommenssteuergesetz, EStG) as well as the KG’s trade tax losses for the corporation tax and trade tax of the GmbH. In tax practice, a question that arises here is whether and to what extent loss utilisation would still be possible after such an accrual.
Issue: Is the offsetting of losses permitted?
In the case ruled on by the BFH, of 19. 3. 2025 (case reference: XI R 2/23), a GmbH was the sole limited partner of a GmbH & Co. KG [a German limited partnership with a limited liability company as a general partner]. The personally liable general partner GmbH, which did not hold an interest in the capital, withdrew from the KG without a financial settlement. Consequently, the assets of the KG were transferred by way of accrual (Section 738(1) sentence 1 of the German Civil Code analogously) to the remaining GmbH.
In its corporation tax return, pursuant to Section15a EStG, the GmbH claimed the inclusion of a loss that corresponded to an offsetable loss of the KG that had existed on the date of the accrual. For trade tax purposes, the commercial loss that was determined for the KG was deducted from the commercial income of the GmbH. The local tax office rejected both claims; the legal action of the GmbH was directed against this decision.
Loss utilisation for corporate tax and trade tax purposes
The BFH clarified that Section 15a EStG does not contain an explicit provision in the case that a limited partner transitions to the status of that of a sole liable partner. In the opinion of the court, this legal loophole must be closed in relation to sources of income in such a way that the offsetting of losses against future profits remains permissible if the source of income continues to exist in an economic sense.
The fact that there is an accrual of the assets to a GmbH does not lead to a different assessment. Admittedly, due to its legal form, the liability of the GmbH is limited to the company’s assets, nevertheless it is still liable with its entire assets. The continuation of business activities therefore justifies offsetting previous losses. The losses of the KG that were offsetable in accordance with Section 15a EStG and that had existed on the date of the accrual of the assets have to be netted off against the taxable income of the GmbH. Similarly, the loss for trade tax purposes that was determined for the KG in accordance with Section 10a of the Trade Tax Act (Gewerbesteuergesetz, GewStG) can be offset against the commercial income of the GmbH.
Timing of the offsetting of losses
In the case in question, the accrual took place on 30.12.2011. On 31.12.2011, the final and absolute loss assessment notice pursuant to Section 15a(4) EStG was already available and showed the losses of the KG. In the opinion of the BFH, such losses can only be offset against the profits of the GmbH that are generated in subsequent years. Taking the losses into account immediately in the accrual year would be precluded if the loss assessment notice for this year had already become final and absolute. In the specific case, offsetting the losses would therefore only have been possible and permitted, at the earliest, in the 2012 assessment period.
