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Tax
07. Sep 2026

Partnership interest - Transfer for no consideration despite an incorrect posting in the capital account

In a recent ruling, the Federal Fiscal Court (Bundesfinanzhof, BFH) clarified that, in the case of payments to limited partners, what matters is not the accounting treatment, but rather the actual agreement. This issue is of particular relevance when transferring a partnership interest. This is because a transfer for no consideration is always made at the carrying amount (Section 6(3) of the German Income Tax Act). By contrast, a transfer for consideration gives rise to a taxable capital gain.

Transfer of a partnership interest for consideration vs. for no consideration

The ‘no consideration’ criterion would be satisfied if the transferee does not provide any consideration and it is agreed that the partnership interest should be transferred by way of a gift. In the case of transfers between relatives, there would be a rebuttable presumption that these were for no consideration. The acquisition of a negative capital account may likewise be for no consideration if the value of the pro rata hidden reserves, including the goodwill, is higher than the negative capital account.

The transfer of a partnership interest would be deemed to be for consideration if the acquirer assumed a vendor liability. Here, it would have to be a genuine liability. This would not be the case for the capital accounts of a limited partner.

Issue: the acquisition of negative capital accounts

In the case underlying the BFH ruling of 15.1.2026 (case reference: IV R 25/23), a limited partner had transferred his interest in a limited partnership (Kommanditgesellschaft, KG) to a family foundation (Familienstiftung) that was not exempted from tax. In accordance with the intentions of all the parties the transfer was supposed to be made for no consideration. In previous years, the vendor had made withdrawals on a large scale, which had given rise to negative capital accounts. The KG made reference to the balances in the amount of approx. €500k in favour of the KG that were in the loan accounts managed for the limited partner and treated them as equity accounts. These were assumed by the foundation.

In the course of a tax audit, the fiscal administration came to the view that the capital accounts on the asset side did not constitute equity, but instead debt. By acquiring the interest in the KG the foundation had released the limited partners from a contractual obligation. The acquisition of these capital accounts must therefore be considered equivalent to the payment of a purchase price. Consequently, on the basis of the difference between the negative balances of the loan accounts (€500k) and the equity (€100k), the fiscal administration calculated a capital gain in the amount of €400k. the Rhineland-Palatinate tax court accepted the arguments of the tax office and stated that the withdrawals were admittedly permissible, however they were made for private reasons. As there was no business reason the KG had granted its limited partner a loan (ruling of 28.9.2023, case reference: 6 K 1796/21).

BFH - Not a claim for repayment that has to be reported on the balance sheet

However, the BFH clarified that payments to a limited partner that are made with the consent of all members of the partnership, but not for a business reason, could not give rise to a claim by the KG for repayment against its limited partner that has to be reported on the balance sheet. Admittedly, a transfer can also be deemed to be for no (or partial) consideration if the agreed counter-performance consists of the assumption of a liability. Although, the prerequisite for this would be that the acquirer

  • assumes the repayment obligation resulting from the transferor having made withdrawals not provided for in the partnership agreement;
  • assumes the repayment obligation arising from a loan by the partnership, or
  • at the time of the transfer of the partnership interest, assumes other liabilities of the transferor that are not included in the business assets of the transferring enterprise.

The BFH referred the matter back to the tax court, which now has to clarify whether the limited partner was in fact obliged to repay the negative balances in his capital accounts.

Please note

The sole determining factor is whether the partnership is able to claim this repayment from him. However, such a claim would not exist in the event of withdrawals for no business reason to which all the partners had given their consent.

Moreover, the BFH made it clear that posting a receivable/liability to the clearing account does not yet have the effect of establishing rights; therefore, the posting does not automatically result in a liability to the partnership. If the withdrawals are consistent with the partnership agreement then these would constitute withdrawals that have to be allocated to and would reduce the respective capital accounts of all the members of the partnership.

Conclusion

If a partnership grants loans to its members, then the commercial law perspective will differ from the one for tax law. From a commercial law perspective, the loans granted to partners through the Mitunternehmerschaft [literally co-entrepreneurship, which refers to the tax status of a German partnership] will normally always constitute a company’s assets, however, from a tax law perspective, this would then only be the case if there was an explicit loan agreement and a business reason. Otherwise, these would be withdrawals at the expense of all shareholders.