date | theme

25. February 2021 | Tax assessment & tax collection at the German tax easing

09. February 2021 | Tax de-engagement & deferral: period and time of payment

04. January 2021 | Tax easing: Taxes on the departure of business assets abroad

06. June 2020 | European law-compliant interpretation and European law inconsistencies in cases of departure and tax easing

05. June 2020 | Anti-Tax Avoidance Directive (ATAD): Critical analysis of early taxation in cases of departure and tax easing

03. June 2020 | Exit taxation & tax easing: Critical analysis of (early) immediate taxation

27. May 2020 | Actual tax easing in cross-border conversions in light of the changed understanding of the agreement by the BFH (task of the final extraction theory) (this contribution)

26. May 2020 | Legal tax easing in light of the changed understanding of the agreement by the BFH (task of the final extraction theory)

25. May 2020 | Tax easing in light of the amended understanding of the agreement by the BFH

The most basic transfer process under German company and tax law is the transfer to corporations according to § 20 UmwStG. Here, all assets are assigned to the new corporation, which constitutes a legal tax exemption. This must be distinguished from the actual tax derivation, in which the assets are actually reclassified, for example by being transferred to another (foreign) permanent establishment. These delimitations between the types of tax derangement are explained here. In addition, the central function of the parent company and the functional allocation of assets are explained.

If the transfer process is based on a conversion in the sense of the UmwG, this can be done in accordance with § 20 para. 6 S. 1 and 2 UmwStG can be referred back to a tax transfer date which is up to eight months before the registration of the conversion with the competent commercial register.[311] If the transfer took place outside the UmwG, according to § 20 para. 3 UmwStG a retroactive effect up to eight months before the signing of the transfer agreement is possible.

This raises the question of the applicability of the derailment standard of § 20 para. 2 S. 2 No. 3 UmwStG for retroactive contributions. Because this standard applies only insofar as the German taxation law is excluded or limited on the tax transmission date.[312] Consequently, it is necessary to determine whether the de-involvement takes place for legal reasons (legal de-involvement) and thus “without further action by the taxpayer”[313] at the tax transfer date or for actual reasons at a later date (actual de-involvement).

A legal de-entanglement exists if the assets are withdrawn from the German taxation law solely because of the changed membership of a legal entity, without the involvement of the actors involved. However, if the de-entanglement is not triggered by the change of legal entity itself, but by an act following the change of legal entity (actual de-entanglement), the general de-entanglement standards are decisive for this.[314] In cases of actual de-knitting, the special de-knitting standard of § 20 para. 2 S. 2 No. 3 UmwStG therefore initially not relevant and the contribution thus tax-neutral possible. The untaking is carried out by a downstream process, the assessment of which must be carried out in accordance with the general untaking standard (§ 12 para 1 KStG).

If the transfer process does not trigger any legal de-involvement, the assignment of an asset to a permanent establishment remains as a rule after the transfer.[316] The financial administration also assumes that a cross-border conversion does not fundamentally change the allocation to a domestic or foreign permanent establishment.[317] Special measures are therefore required so that an economic asset is de-engaged from German taxation law by an actual act after the tax transfer date. For this purpose, two case groups can be identified in which the subsequent change in the place of establishment is in a temporal and factual connection with the contribution.

Economic goods which are always assigned to the parent company in accordance with the central function thesis[318] are particularly affected by an actual de-engagement.[319] The classic application example here is the transfer of a domestic permanent establishment of a domestic legal entity to a foreign EU/EEA corporation (scenario 4 on page 31). Economic assets that do not remain assigned to the domestic permanent establishment on the basis of their functional approach are – at least in the opinion of the financial administration – to be allocated to the parent company.[320] The allocation relates in particular to participations, financial resources, intangible assets (e.g. patents, rights, trademarks and know-how) and the

original goodwill and occurs at a date following the tax transfer date.[321] The de-knitting brought about by the central function thesis cannot take place retroactively to the tax transmission date. This is due to the fact that only at the time when the responsibility for an economic asset is actually transferred to the foreign parent company, the assignment can change and thus trigger a change in the company membership.[322] Until then, the economic asset will still be responsible for the business overhead by the old (second) place of business overhead management that has remained until then.[323] The transfer of responsibility can occur at the earliest with the civil validity of the submission.[324] Only the allocation of assets, which according to their functional approach are still attributable to the domestic permanent establishment[325], should not be subject to any change in allocation by the central function of the parent company.[326]

But also the allocation of assets based on the actual functional allocation can be changed by the contribution. The change in the functional context can lead to both legal de-engagement and actual de-engagement. A legal unencumbrance according to § 20 Abs. 2 S. 2 No. 3 UmwStG at the transfer date is available if the de-entangling is triggered by the change of legal entity itself.[327] If, on the other hand, an actual action of the acquiring company following the transfer date leads to a new functional context, the actual de-engagement is decisive under the general de-engagement rules. Typical applications for actual de-knitting are the relocation of functional units, including the associated machines as well as raw materials, auxiliary materials and consumables, to foreign plants, which are initiated after the transfer by the management. Such actual transports take place separately from the change of legal entity under civil law and thus lead to a de-entangling downstream of the tax transfer date. These cases of de-engagement may occur irrespective of whether the acquiring company is a domestic company or an EU/EEA corporation. All six of the scenarios presented on pages 30 and 31 may be affected by a de-entangling due to a changed functional assignment.

It will be the rule that in both cases the economic asset was first assigned to a German establishment and is untangled from it in the course of the transfer. On closer examination, however, it becomes clear that this de-engagement does not lead to the exclusion of the German taxation right on the hidden reserves created until the transfer and thus the general de-engagement norm of § 12 para. 1 S. 1 KStG can in principle not trigger. Only by applying the regulatory example according to § 12 para. 1 S. 2 KStG in these cases an exclusion of the German taxation law is assumed and thus a de-tricking taxation is triggered.

There would have to be a special situation in order for the actual tax easing to lead to the exclusion of the taxation right on the profits accrued until the transfer. This would theoretically be the case if a German contributor transfers a foreign crediting permanent establishment to a German corporation, the limited right of taxation of the Federal Republic of Germany on the foreign economic good is thus initially maintained and then, by changing the functional context, the economic good – for example, because it has already served before the transfer of the function of a foreign DBA permanent establishment of the acquiring corporation in the context of a transfer – is transferred to the foreign DBA permanent establishment.

In practice, however, the latter will be the exception, so it should be noted that in the temporal and factual context of a cross-border transfer, the German tax law at the level of the acquiring company can hardly be excluded or restricted. A downstream de-tricking taxation according to § 12 Abs. 1 S. 1 KStG is thus almost always outflow of the control example.

Since a corresponding provision has not been made in the special de-trickling standards, the regulatory example cannot be applied analogously to conversion law de-trickling in the view held here in the absence of an unplanned regulatory gap. [330] The control example thus only applies to the general knitting standards and consequently only to knitting processes of the actual type. The effects of the changed understanding of the agreement were thus neutralized.

The question of whether the change of permanent establishment affiliation takes place at the tax transfer date or at a subsequent time is thus of decisive importance. Because in the case of changes in allocation to the tax transfer date, the special derailment standards (here: § 20 para 2 p. 2 no. 3 UmwStG) are decisive. However, these will often not be relevant – in the absence of a loss of German tax law – so that a de-entanglement is regularly to be denied.[331] If, however, the economic asset would be assigned to a foreign permanent establishment at a time following the tax transfer date, the general de-entanglement standards (§ 4 para. 1 S. 3 EStG and § 12 para 1 S. 1 KStG) including the regulatory example contained therein relevant. Although an exclusion of the German taxation law would also be to be denied in principle here, such an exclusion is assumed by the regulatory example. Only because of the fictitious exclusion of German taxation law caused by the regulatory example would these cases lead to a de-tricken taxation.

The regulatory example of cross-border restructuring is therefore of particular importance for the central function thesis of the parent company. Because of the changed understanding of the agreement law, this would not lead in the vast majority of cases to a loss of taxation of the hidden reserves that had previously been created in Germany. Only by the control example is the exclusion, i.e. the restriction of German taxation law is artificially suspected and thus assumes an actual de-engagement.

The version of the permanent establishment management principles, which applied until 31 December 2005,[332] provided in paragraph 2.6 the possibility of distributing the tax burden arising in the course of tax easing over a period of ten years for reasons of equity. With the codification of the deregulation standards within the framework of the SEStEG, this equity rule was adopted in § 4g EStG. § 4g EStG now allows the taxpayer to neutralize the hidden reserves discovered in the context of tax easing with a tax offset item. The tax offset must then be dissolved in the year of education and in the following four years. On the reference of § 12 (1) S. 1 Hs. 2 KStG, the advantage is also applicable to corporate tax deregulation. However, prerequisites are, among other things, that the taxation of de-integrating takes place at the level of an unrestrictedly taxable corporation, that it is an asset of the fixed assets and the transfer to a permanent establishment in an EU country takes place.[333]

The scope of § 4g EStG is limited to the general derailment regulations and thus to the actual derailment. According to § 4g Abs. 5 EStG, the provisions of the UmwStG are expressly unaffected by the scope of § 4g EStG. For conversion-related de-knitting, the UmwStG does not provide for comparable advantages, nor are they analogously applicable to conversion-related de-knitting. Therefore, the conversion-related deferral tax at the level of the transferring entity cannot be deferred by the formation of an offsetting item, by repayment in annual instalments or by deferral. The tax triggered by § 20 para 2 p. 2 no. 3 UmwStG is to be determined, fixed and collected in accordance with the general principles. Thus, the de-tricking tax arose at the end of the assessment period (§ 36 para 4 EStG, § 30 no. 3 KStG) and must be paid within one month after the notification of the tax assessment (§ 36 para). 4 p. 1 EStG, for corporations in accordance with § 8 para 1 KStG. It is therefore a so-called “immediate taxation”.

The scope of application of § 4g EStG in European law is of particular importance. Finally, the ECJ considers immediate taxation to be disproportionate and thus incompatible with fundamental freedoms. In contrast, the ECJ considers that a de-tricken tax levied uniformly in five annual instalments respects the principle of proportionality.[335]

Untangling takes place according to § 20 para. 2 S. 2 No. 3 UmwStG, the hidden reserves are to be discovered at the level of the transferring legal entity and subjected to the taxation of profits. However, the legal situation must be assessed differently when applying the general deregulation standards. This is because, in the absence of tax unencumberment, it is initially possible to introduce it tax-neutrally at the tax transmission date. If the de-involvement subsequently takes place on the basis of an actual action of the management in accordance with the general principles (actual de-involvement), the resulting de-involvement consequences are to be drawn at the level of the acquiring corporation.[336]

According to the general rules of de-engagement, the exclusion and restriction of the right of taxation from the use of an asset also lead to final taxation. This refers to cases in which an asset tax-detained in Germany is temporarily transferred to a foreign permanent establishment for use free of charge or at a reduced price and thus profits are transferred abroad. Due to this non-permanent transfer of use, the allocation of the asset between the parent company and the permanent establishment is not changed and the domestic taxation right to a capital gain is neither excluded nor limited.[337] It was therefore necessary to regulate the deregulation of rights of use. Since the entry into force of the VerwaltungshilfeRLUmsG, a use deregulation will occur in the rarest cases, since a free or cheaper transfer of use of a domestic asset to a foreign permanent establishment must now be based on a fictitious transfer price according to § 1 AStG. In conversion cases, this already narrow scope of application is reduced to zero, so that no corresponding regulation in the UmwStG is necessary.[339]

Silent liabilities arise when the assets are valued above or the liabilities below their common value under balance sheet tax law. The discovery of the hidden burdens leads – in contrast to the discovery of hidden reserves – to an effort that has a fundamentally tax-reducing effect. It is therefore questionable whether, in the context of tax deregulation, the common value approach is also applied to assets with silent burdens.

If the tax deregulation takes place on the basis of the conversion tax law special standard of § 20 para. 2 S. 2 No. 3 UmwStG, are the unwrapped assets according to § 20 para. 2 S. 1 Hs. 1 UmwStG with their common value, so that in principle no special feature results. The silent loads thus reduce the input gain or increase the input loss.

3.5.1. Pension provisions in accordance with § 6a EStG

In pension provisions, hidden burdens are particularly often hidden due to the special valuation procedure according to § 6a EStG. By the exception of § 20 para 2 S. 1 Hs. 2 UmwStG, the legislature avoids the discovery of these silent burdens within the framework of the contribution. The provision specifies that in the case of the (co-)transfer of pension provisions, these are always to be assessed in the tax balance sheet in accordance with § 6a EStG and are therefore to be used with their book value. This applies both to cases where the taxable person voluntarily chooses to recognise the common value and to cases where the taxable person is obliged to recognise the common value by virtue of conversion tax deregulation. As a result, the hidden charges in pension provisions are not transferred on the transfer date according to § 20 para. 2 UmwStG revealed.

However, if the submission is made with reference to § 20 para. 5 and 6 UmwStG retroactively, for the question of tax derailment – as described above – the general derailment regulations may be used. § 12 Abs. 1 KStG sees neither one of the exception provisions of § 20 para. 2 S. 1 Hs. 2 UmwStG, still includes § 12 para. 1 KStG a reference to this. In the case of retroactive contributions, pension provisions are therefore first to be recognised with their book value according to § 6a EStG, irrespective of whether the other assets are valued at their book value, intermediate value or common value, in accordance with § 20 (2) S. 1 Hs. 2 UmwStG. Only at the time of the actual transfer of the pension provisions to the acquiring company does the unbundling take place in accordance with general rules and thus at the common value and with the discovery of the hidden charges.[340]