If a division of operations has occurred intentionally or unintentionally, one faces the problem of ending it as tax-neutrally as possible and avoiding the discovery of hidden reserves. In the following article, we show you six designs for resolving the division of operations in different starting situations.

In the video we show you various strategies to avoid a division of operations in advance, as well as in retrospect or to consciously maintain it.

1. continuation of commercial activity in case of division of operations

The avoidance of the legal consequences of the termination of the division of operations on the part of the holding company can be achieved by continuing as a commercial company[244], since the discovery of the hidden reserves would only take place because of the cessation of the commercial activity of the holding company. The preservation of commerciality can be achieved by a further commercial activity of the holding company, in addition to the transfer of use of the essential operating basis, since the discoloration regulation of § 15 (3) No. 1 EStG applies to the entire holding company. Furthermore, a participating GmbH in the holding company (limited partnership), which acts as a personally liable company and the limited partners are additionally not authorized to manage, can result in the preservation of commerciality. Due to the commercial character of § 15 (3) No. 2 EStG, the holding company then continues to generate commercial income despite the termination of the division of operations.[245] According to the literature, it is therefore advisable to manage the holding company in the form of a GmbH & Co. KG, which complicates the company construct even further, but a removal of the prerequisites for the division of operations does not result in the discovery of the hidden reserves. As a further advantage, it is not necessary to carry out a complex introduction process.[246]

2nd conversion / contribution of the ownership company

Avoiding the discovery of hidden reserves can be achieved by converting the holding company (e.g. individual company) into a GmbH & Co. KG. After the foundation of the GmbH & Co. KG[247], the holding company is transferred at book values according to § 24 (2) S. 2 UmwStG, so that the commercial qualification is maintained despite a possible end of the division of operations and the hidden reserves are not revealed. A further advantage in the continuation of the shareholding is the exemption from the real estate transfer tax.[248] Also, a transfer of the holding company to the Betriebs-GmbH is a design possibility not to reveal the hidden reserves, since according to § 20 UmwStG the holding company can be transferred to book values. It should be noted here that the operation must be brought in as a whole, i.e. with all the essential operating bases, since a desired book value continuation is otherwise not permitted. A disadvantage here, however, is the real estate transfer tax liability for transferring real estate, which is triggered by the transfer process.[249]

A possible strategy for preventing the discovery of hidden reserves in the event of an operating split is to keep the shares in the operating company in the special assets of the shareholders of the holding company. Despite a possible dissolution of the holding company, the hidden reserves of the shares are then not dissolved until there is a sale to third parties who are not involved in the operating company. The discovery of the hidden reserves of the assets cannot be avoided with this constellation, but with a large increase in the value of the shares the taxation of the hidden reserves can be delayed.[250]

4th operating lease in total

An operating lease as a whole exists within the framework of the operating split if all the essential operating bases that are essential for the operation of the operating company are transferred by the holding company for use. This lease has the advantage, at a possible end of the business split, that the shareholder of the holding company is granted the right to choose, if the transfer of use continues, to continue to obtain commercial income or rental and lease income. If this right of choice is exercised, the taxation of the hidden reserves is eliminated, since the holding company is continued as a commercial enterprise.[251]

5th Division: Change in Voting Conditions

Before a possible transfer of shares, a change in the voting rights may be a possibility to continue the division of operations. In the case of a sale to a third party, the company’s Articles of Association may be amended beforehand, so that the previous shareholders can continue to have a dominant role, the share buyer will be granted the status of a sole shareholder. A share purchase can also be taken over by an existing shareholder, so that the buyer may control the ownership and operating company alone through the newly acquired shares. In both cases, an end to the division of operations is prevented by a taxation of the hidden reserves.[252]

6. Regulated succession to avoid division of operations

The termination of the division of the business by an inheritance is often of an unintended nature, since the distribution of the assets of the exterminator to different heirs could no longer fulfill the necessary control on the part of the owner as well as the operating company. Therefore, a clearly defined succession by a contract of succession or a will can prevent the termination of the division of operations, since it is ensured that the personnel connection also in relation to the heirs is still fulfilled by the universal succession. An obligatory component of a contract of succession or will should, with regard to avoiding the termination of the division of operations, be a formulation which regulates the transfer of the holding company and shares of the operating company at the same time, so that there is no time difference in the transfer and thus a short-term non-fulfilment of the criteria.[253]

Tax consultants to avoid the GmbH division of operations

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