date | theme

09. October 2020 | Company selling without taxes? Three options that bring you closer to your goal

23. April 2021 | Buy company shares – write off purchase price in supplementary balance sheet

18. June 2021 | Business Divestment: Share-Deal not taxable – also consider adverse legal consequences!

19. November 2021 | Shares in an insolvent GmbH: Recovery of the purchase price possible?

25. August 2022 | Arrangements for the sale of shares in corporations: How to save taxes! (this contribution)

The sale of shares in corporations from private assets is subject to taxation in accordance with § 17 EStG. The control load can be minimized by clever design. We explain some models and how the income from divestment according to § 17 EStG is subject to taxation at all.

1. Sale of shares in corporations, § 17 EStG

If shares in a corporation are held in the private assets of the taxpayer, the capital gain is in principle subject to taxation in accordance with § 17 EStG. Accordingly, the seller must have participated directly or indirectly in 1 % of the company’s capital within the last five years. Then he has to tax his capital gain pursuant to § 17, which is the difference between the capital price less the capital costs and the acquisition costs. The five-year period refers to the five years before the sale under assessment.

However, divestments in this sense are only those for remuneration. A remuneration is only accepted if an equivalent consideration is provided. However, § 17 (1) sentence 4 EStG extends the tax liability of the basic event and ensures the tax liability of essential shares in the event that these shares were acquired free of charge within the five-year period. The vendor must then have the time of ownership of the substantially involved legal predecessor credited. The only decisive factor is that the participation of the taxpayer as a result of the free acquisition does not become a substantial one within the meaning of § 17 (1) sentence 1 EStG. Then the basic facts of paragraph 1 sentence 1 already apply.

We explained how taxation takes place if the shares are held in the company assets or there is an insignificant share, in one of our other contributions.

2. Arrangements of the vendor for the sale of shares in corporations

2.1 Anticipated succession

Within the framework of the anticipated succession, the transfers can be arranged in such a way that the allowance of § 17 (3) EStG can be claimed in each case. In agreement with the acquirer, a part can also initially remain with the seller. However, legal ties of the seller to the acquirer may give rise to economic ownership of the acquirer and thus to the allocation of the shares to him. Therefore, you must formulate such agreements skillfully. We are happy to advise you on this.

2.2 Modifications of the sale price

The sale price and thus the gain on sale can be reduced by distributing profits before the sale. This is possible by combining disposition possibilities under company law in the distribution of profits with a temporary retention of the position of shareholder of the seller. For this purpose, for example, disquotal profit distributions could be agreed.

3. Arrangements of the acquirer for the sale of shares in corporations

3.1.Basic situation: No depreciable cost

The acquirer of a significant shareholding does not initially realize an income tax event. Through the acquisition, however, he lays the basis for his future income tax treatment. From a tax point of view, the income tax treatment of the acquisition of a share in a corporation, so-called share deal, differs fundamentally from the purchase of a company by acquiring all assets and liabilities, so-called asset deal. The assets acquired during the acquisition of shares constitute non-depreciable holdings. Thus, it is usually better for the buyer to agree an asset deal directly. Therefore, the acquirer of a shareholding in a limited company does not have the possibility to allocate the purchase price among the individual usable assets and thus transform it into income-reducing acquisition costs. Therefore, tax arrangements of the acquirer of an interest in a corporation attempt to convert the non-depreciable shareholding after acquisition into depreciable individual assets.

3.2. Purchasing assets of the company

A model for the acquirer is based on the combination of profit distribution and a partial depreciation that neutralizes this income tax. After acquiring the shareholding, the corporation sells all assets to its new shareholder, uncovering the hidden reserves. As a result, the purchased usable individual assets can be depreciated on the basis of their acquisition costs. On the other hand, the limited liability company can distribute the profits realised by the sale to the shareholders as dividends. The distributions and thus reduce the value of the corporation, so that the shareholder can write off a partial value on his participation, which then neutralizes the dividend-related shareholding income.

4. Loss management on the sale of shares in corporations

Exciting is also a design currently pending before the Federal Finance Court (BFH). However, it remains to be seen whether the BFH recognizes them. Two shareholders each share half in a GmbH and each sell their shares in the GmbH to each other under value. This arrangement is intended to make it possible for each shareholder to lead to a loss on sale pursuant to Section 17(2), first sentence of the EStG, resulting in a tax refund.

According to the tax court, the arrangement cannot be regarded as abusive simply because each shareholder acquired an equal share from his co-shareholder at the same price on the same day. An abusive arrangement can only be assumed if the prices for the identical shares reciprocally sold and acquired were agreed significantly below their actual value and if a reasonable price would have resulted in a capital gain according to § 17 EStG.

5. Conclusion on the sale of shares in corporations