date | theme

25. April 2017 | Use loss carry forward in the GmbH purchase

23. August 2018 | GmbH loss carry forwards: § 8c KStG unconstitutional -> objection & deadline

11. November 2018 | Save the loss carry forwards at the GmbH: the new § 8d KStG helps!

17. February 2019 | Buy loss carryforwards from GmbH: 6 new strategies for the use of losses

24. July 2020 | Acquisition of a Loss GmbH: tax-free profits and loan repayments (this contribution)

The acquisition of a Loss GmbH can be used to generate tax advantages. Thus, under certain conditions, it is possible on the one hand to obtain current profits tax-free from the GmbH by offsetting them with the acquired loss carry forward. On the other hand, a Schaden-GmbH is often burdened by a loan granted by one or more former shareholders and whose claim is now transferred to the acquirer upon acquisition. The repayment of this liability can also be tax-neutral. As a result, a refund of the purchase price is also possible indirectly, since this was finally negotiated taking into account such previously existing loans when purchasing Loss GmbH.

We explain how you can use tax advantages when acquiring a Loss GmbH and existing liabilities to the shareholder.

1st introduction

The acquisition of a GmbH, which shows a loss carry forward and which we therefore briefly call Loss GmbH in the further course of our article, can offer tax advantages. On the one hand, this thus opens up the possibility of offsetting current profits against the acquired loss carry forward. On the other hand, such a loss GmbH is usually also burdened by at least one shareholder loan. Of course, it can be assumed that such a liability still exists when acquiring Loss GmbH and will now be transferred to the acquirer. Of course, the loan also played a role in the purchase negotiations and thus determined the amount of the purchase price. So it is in the interest of the acquirer that Loss GmbH now repays such a loan to him. From this starting point, we describe with which design tools we can achieve both goals without paying taxes.

2nd rescue of loss carry-forward of a Loss GmbH

2.1 Restrictions on the use of acquired loss carry forwards

Losses recorded in the past can in principle be offset against future profits. This either reduces the burden with corporate tax and trade tax of the GmbH or even avoids it altogether. However, different rules apply when using the loss carry forward of an acquired GmbH. In order to prevent the associated potential abuse, the legislature has introduced § 8c KStG, which basically excludes the use of acquired loss carry forwards. However, in exceptional cases it is still possible to offset these carried forward losses. We already referred to these possibilities for using an acquired loss carry forward in previous contributions. In it, we also pointed out that there are doubts about the constitutional conformity of § 8c KStG.

2.2. Repayment of shareholder loans acquired with Loss GmbH

In the further course of this article, we assume that it is possible for the acquirer in one way or another to use the acquired loss carry forward. The resulting net income is now available to offset the existing shareholder loan. However, in this case, this repayment is still to be regarded as taxable. This is regulated in § 20 paragraph 2 no. 7 sentence 2 EStG. However, this would also mean that the taxation of these capital incomes must be carried out at the personal tax rate of the shareholder, rather than at the flat-rate rate of 25 %, by withholding tax. In view of the fact that a GmbH shareholder very often has to reckon with the top tax rate, this development is by no means a satisfactory result. Therefore, we now introduce you to how you can avoid this and still repay the loan to you.

Tax-free repayment of the shareholder loan by Loss GmbH

It should be emphasized once again that a tax-free repayment of the shareholder loan from an acquired Loss GmbH in Germany is excluded. We have already explained the reasons for this. So if something is tax-impossible in Germany, the idea is of course obvious to try it via a detour abroad. In fact, this is also the promising approach here.

3.1. Departure of the GmbH shareholder abroad

So we recommend the departure of the GmbH shareholder abroad. However, the deadline stipulated in the Foreign Tax Act is that a loan repayment can only be made tax-free after ten years after moving abroad. However, if you want to avoid such a long waiting time, you can achieve the goal without meeting the deadline with some restrictions on the choice of your new home.

3.2 Moving abroad: Benefit of double taxation agreement

The choice should preferably fall on a member state of the EU or the EEA, because Germany has concluded double taxation agreements with them. However, Germany has also concluded double taxation agreements with a number of other countries, for example with the USA. Double taxation agreements exist to avoid double taxation of the taxpayer both in Germany, the country in which the company has its registered office, and in the country in which the GmbH shareholder is resident. Instead, the double taxation agreement authorizes the shareholder to be taxed exclusively under the tax law of the country in which he is domiciled. In other words, double taxation agreements regulate which country renounces its tax sovereignty in order to avoid double taxation of a taxpayer. It is therefore easy to see in our approach that this country is chosen by a country in which no taxation is provided for when repaying a shareholder loan.

3.3 Exclusion of German tax jurisdiction by cross-border merger of Loss GmbH

A third alternative is the cross-border merger of Loss GmbH with a company resident abroad, in a country where you also have your place of residence as a shareholder. Because this shifts the taxation sovereignty at the Loss GmbH also with you. As a result, Loss GmbH is now subject exclusively to tax standards abroad. At least then neither you as a shareholder nor the company are considered a German tax subject. Therefore, none of the aforementioned restrictions on the repayment of the shareholder loan apply. Of course, it must first be ensured that this does not cause taxation in your new homeland either, but this is certainly easy to find out. We are happy to advise you on this.

4. Final observations

Admittedly, the models we have developed and presented here have a certain complexity, but this is primarily due to the requirement of moving abroad. Of course, we know that moving abroad is often a very personal decision that follows fewer financial conditions, but takes into account private interests in particular. But if you can achieve two different goals in this way, then of course it means all the more to us if we can help you to implement the part with which you can save taxes in Germany.

In addition, such an evaluation is certainly only for the fewest interested parties in question. Especially since other requirements, in particular the exit tax, have to be observed, you have to plan with great care. Therefore, before such a step, we strongly recommend that you discuss the planning together with a tax consultant experienced in international tax law, someone who will give you the good feeling that the project is certainly successful, but also that it is worthwhile for you.