Artificial partition in kind - Treasury shares as economic goods that are eligible for a partition in kind
Tax-neutral partition in kind constitutes a key instrument for the restructuring of partnerships. It was hitherto questionable whether the treasury shares of corporations must be regarded as economic goods that are suitable for a partition in kind.
The Federal Fiscal Court (Bundesfinanzhof, BFH), in its ruling of 21.8.2025 (case reference: IV R 16/22), decided that, in the context of an artificial partition in kind, treasury shares that an exiting corporation grants and that are subsequently redeemed may satisfy the requirements for economic goods that are eligible for a partition in kind.
In the underlying case, a corporation withdrew from a partnership and received treasury shares that were subsequently redeemed. The BFH approved the maintenance of book values in accordance with Section 16(3) of the Income Tax Act (Einkommenssteuergesetz, EStG) (old version). Neither redeeming the shares nor the transfer between the corporate entities constituted a breach of the blocking period under the legal situation that prevailed at the time. The so-called corporation tax clause (Section 16(3) sentence 4 EStG, old version) should be interpreted teleologically, as its purpose – the prevention of abusive tax structuring – was not at issue in the case in question.
