Blocking periods in conversion tax law

para. | paragraph

AO | Tax Code

Founder

BFH | Bundesfinanzhof

DStR | German Tax Law (Zeitschrift)

EStG | Income Tax Act

ff. | continue following

according to

GewStG | Business Tax Act

GmbH | Company with limited liability

HGB | Commercial Code

Edited | Editor

Hs | half sentence

KG | limited partnership

KStG | Corporate Tax Act

No | Number

OHG | Open trading company

paragraph | recital

S. | sentence

UmwG | conversion law

UmwStG | Conversion Tax Act

v. | from, from

Brandis, Peter

Heuermann, Bernd

(ed.) | Income Tax Law

Volume 5: AStG, EigZulG, FördG, FZulG, InvStG, InvZulG, KapErhStG, SolZG, StAbwG, UmwStG, VermBG, WoPG

Supplementary delivery, Munich 2023

Dieterich, Thomas

Hanau, Peter

Schaub, Günter

(gr.) | Erfurt commentary on labour law

Law of Conversion

Edition, Munich 2024

Haritz, Detlef (gr.)

Menner, Stefan (ed.)

Bilitewski, Andrea (ed.) | Conversion Tax Act

Edition, Munich 2019

Schmidt, Ludwig

(gr.) | Income Tax Act

Edition, Munich 2023

Schmitt, Joachim

Hörtnagl, Robert

(ed.) | Conversion Act, Conversion Tax Act

Edition, Munich 2020

In addition to civil law reasons for a conversion of a company, there can also be a variety of tax types. Therefore, the legislator was interested in setting regulatory framework conditions for this. For example, he introduced blocking periods in conversion tax law for various conversion processes.

List of abbreviations

I. Introduction

For entrepreneurs, the question often arises of restructuring companies as effectively as possible. Especially if they have larger holdings and/or holdings. For example, an OHG that wants to convert into a GmbH or a sole proprietor who wants to bring her sole proprietorship into a GmbH against the granting of company shares. The aim is to avoid the hindrance of corporate restructuring by detecting and taxing hidden reserves. This is also the main task of conversion tax law.1 When transferring individual assets, the continuation of the book value of § 6 Abs. 5 EStG are applied.2 However, if the transferred assets are not only individual assets, but also a business, part-operation, shareholder share or a qualified shareholding in a limited company, this is covered by the Conversion Tax Act.3 The conceptual provisions of the various types of conversions to which the provisions of the Conversion Tax Act apply are contained in the Conversion Act. § 1 para 1 UmwG lists the four types of conversion of legal entities: merger, division, transfer of assets and change of legal form.4 The regulations of the UmwStG constitute additional special provisions to the EStG, KStG and GewStG.5 It enables tax-neutral restructuring under certain conditions through book value continuation. For example, it grants the assuming entity the right to choose to recognise the transferred assets with the previous book value, which is then regarded as the selling price by the contributor.6 However, the UmwStG also contains several blocking flops to prevent abusive designs. These abuse rules lead to a, usually retroactive, exclusion of tax-neutral conversions.7

In this seminar paper, the various blocking periods of conversion tax law are to be explained. The aim is to indicate which conversions are subject to blocking periods, when they take effect and what legal consequences result from them.

II. Lock period for takeover profit

The first blocking period in the UmwStG is in § 6 para. 3 UmwStG. If a conversion, by the combination of claims and liabilities or the dissolution of provisions, a so-called takeover profit, arises, § 6 UmwStG grants the possibility to place it in a tax-free reserve.8 This reserve must, after its formation in the year of the transfer of assets, in accordance with § 6 para. 1, S. 2 UmwStG will be dissolved in the following three years. Therefore, the formation of the reserve does not have a tax-reducing effect, but a tax deferral effect.9

Subsequent takeover profits arise acc. § 6 Abs. 1, page 1 UmwStG, on the one hand, if, for example, claims and liabilities exist between the acquiring A OHG and the transferring B GmbH and the recognised value of the claim is lower than that of the liability.10 For example, if the claim was subsequently valued at a lower level than the liability.11 On the other hand, takeover profits arise if, for example, A OHG would have made a provision because of an uncertain liability towards B GmbH and dissolves it after the conversion.12 If takeover profits arise from a conversion with a shareholder of the acquiring partnership, the possibility of setting aside provisions under para. 1 in accordance with § 6 para. 2, p. 1 UmwStG However, only for shareholders who were already shareholders of the partnership when the conversion decision was registered (§ 6 Abs.). 2, p. 2 UmwStG.13

The provision of § 6 UmwStG only concerns follow-up acquisition profits. Takeover losses, on the other hand, directly reduce the current profit of the acquiring legal entity.14 It applies in principle to the conversion of a corporation into a partnership or a natural person. In addition, it applies, for example, correspondingly in the case of a merger or transfer of assets to another corporation, according to § 12 para. 4 UmwStG.15

In order to prevent misuse of reserves, § 6 para. 3 UmwStG a blocking period, after which an established reserve is to be dissolved retroactively, if within five years after the tax transfer date, the buyer transfers the business transferred to it into a corporation or sells or abandons it without a valid reason.16 For the application of § 6 para. 3 UmwStG several requirements must be met. First of all, the operation, i.e. the functionally essential operating bases, must be transferred. The transfer of individual assets from the transferred assets is not sufficient for the application of para 3. Neither is the transfer of branches, individual co-entrepreneur shares or the original operation of the acquiring partnership recorded.17 In addition, the economic ownership of the transferred business must have been transferred within five calendar years, beginning with the tax transfer date.18 Another condition is the transfer of the transferred business to a limited company against the granting of company shares acc. § 20 Abs. 1 UmwStG.19 As an alternative to transfer to a corporation, § 6 para. 3 UmwStG also to be applied in case of sale or cessation of the transferred operation without valid reason. A sale is a transfer of ownership in return for payment. The transfer to a partnership pursuant to § 24 UmwStG also constitutes a sale process. However, in such a case, the contribution is harmless if the acquiring partnership fulfils the remaining term of the five-year period.20 Due to the condition of remuneration, a free transfer pursuant to § 6 para. 3 EStG no sale within the meaning of § 6 Abs. 21 In the case of a part-paying transaction, the provision applies if the part payable exceeds the part free of charge.22 An operating task within the meaning of § 6 para. 3 UmwStG exists if the essential operating bases of the transferred business are transferred to private assets in a uniform operation on the basis of a decision of the taxpayer or are used for other non-business purposes and thus the existence of the business ends. In the case of a gradual withdrawal of the transferred assets, an operating task is present if the last essential operating basis is transferred to the private assets within the five-year period. Furthermore, an operating task is also present in the case of a concealed contribution to a corporation.23 However, the sale of operation or operation task only constitutes a detrimental process if there is no valid reason.24 A valid reason is present in particular if the economic conditions have changed after the completion of the conversion process in such a way that the sale of operation or operation is carried out, i.e. operating task can be regarded as an economically reasonable reaction to the changed circumstances. If the reason was already foreseeable before the company was converted, it is usually not considered valid.25 Possible valid reasons may be, for example, liquidity problems, a fall in profitability or necessary rationalisation measures. When proving a valid reason, the burden of proof falls on the taxpayer.26 If the requirements of § 6 para. 3 UmwStG are retroactively to correct the formation of reserves in a profit-increasing manner and their dissolution in a profit-reducing manner. The financial administration is in accordance with § 6 Abs. 3, S. 2 UmwStG obliges the tax assessments, tax measurement assessments, exemption decisions or determination decisions to change retroactively. The provision constitutes its own procedural amendment provision which takes precedence over the provisions of the Tax Code.27

III. Restriction period in case of division of entities

The next blocking period in the UmwStG is in § 15 para. 2, pages 3 and 4 UmwStG and concerns the division of corporations. In principle, § 15 UmwStG regulates the division (§ 123 para 1 UmwG), the separation (§ 123 para 2 UmwG) and the partial transfer (§ 174 para 2 UmwG) from corporations to corporations. However, the provision of § 15 UmwStG gem applies. § 16 S. 1 UmwStG also in the case of the division or separation of a corporation into a partnership.28 By § 15 para. 1 UmwStG, the provisions on the merger of corporations (§§ 11 to 13 UmwStG) apply accordingly to the division. However, § 15 Abs. 1, p. 2 UmwStG for the application of § 11 para 2 and § 13 para. 2 UmwStG, which on request allows the recognition of the transferred assets and the shares in the acquiring corporation with the book value, the existence of branches. An approach to book values is necessary for a tax-neutral division in the transferring corporation and its shareholders.29 However, the concept of a branch is not defined by law.30 According to the settled case law of the BFH, a branch is to be understood as a part of the overall operation that is endowed with a certain degree of independence, is organisationally closed and viable on its own. In addition, a part-operation is only considered to be transferred if all functionally essential operating bases belonging to the part-operation are transferred to the acquirer.31 In addition to genuine parts-operations, co-entrepreneur shares and 100 % shareholdings in corporations, so-called fictitious parts-operations according to § 15 para. 1, p. 3 UmwStG as a subsidiary within the meaning of § 15 para. 1, p. 2 UmwStG and can be transferred tax-neutrally within the framework of a division.32

In order to prevent abusive designs, § 15 para. 2 UmwStG defines various abuses which are intended to exclude the right to choose the book or intermediate value approach of § 11 para. 33 One of these concerns the sale of shares in one of the participating legal entities after the division. This blocking fist is in § 15 Abs. 2, pages 3 and 4 of the UmwStG. This so-called post-sales block applies if more than 20 % of the shares in the transferring entity before the division are sold within five years after the tax transfer date.34 As a sale within the meaning of § 15 para. 4 UmwStG applies to the transfer of economic ownership in shares in one of the participating legal entities.35 Non-remunerated transfers such as gifts or succession are harmless. However, remunerated disposals by the legal successor after a free transfer constitute harmful disposals.36 In the case of part-remunerated disposals, there is a division into a remunerated share and a free share, whereby only the remunerated share is relevant for the examination of the 20 % limit.37 Furthermore, it must be a sale to outside persons within the meaning of § 15 para. 2, p. 2 UmwStG. Therefore, sales are made to the shareholders of the transferring entity, as well as to the companies associated with them (§ 271 para.). 38 In addition, only the sale of shares in a company participating in the division is harmful.39 When calculating the minimum threshold of 20 %, the common value of the shares in the transferring company must be determined at the tax transfer date, as well as the division of this value between the remaining shares of the transferring company or company. of the acquiring entities.40 Both the amount of the nominal capital of the entities involved in the division and their performance are irrelevant for the determination.41 In the case of a sale of shares, the actual selling price does not matter. Instead, a fictitious value relation to the tax transfer date is determined.42 It is also important that all harmful sales are added together within the blocking period of five years. However, each share is taken into account only once. Therefore, if the same share is sold several times within the blocking period, only the first sale counts.43 If the small amount is exceeded, the assets transferred during the split must be recognised at the common value.44 This constitutes a retroactive event within the meaning of § 175 para. 1, p. 1, no. 2 AO, which is why corresponding decisions must be amended both for the transferring and the acquiring body.45

IV. Suspension period for conversion into a partnership or a natural person

After one of the conversions of a corporation to a natural person or partnership regulated in §§ 3 et seq. or § 16 UmwStG, the blocking list of § 18 para. This applies, for example, to mergers, divisions and separations into a natural peron or partnership and change of form into a partnership.47 This misuse provision applies acc. § 18 Abs. 1 UmwStG, if the business is abandoned or sold within five years after the conversion, and subjects any profits resulting therefrom to business tax.48 The profit from the cessation or sale of a business or part of a business in the case of co-entrepreneurships is acc. § 7 S. 2 GewStG free of trade tax insofar as it applies to a natural person as a directly involved co-contractor. Therefore, the purpose of the provision is to prevent that by prior conversion into a partnership, a corporation can be sold or abandoned free of trade tax.49

1.

For the application of the blocking period, a corresponding conversion of a corporation must first have taken place, as already described. Another condition is the sale or abandonment of the holding. Therefore, § 18 Abs. 3 UmwStG does not apply if conversions are involved within the meaning of § 8 UmwStG, in which the transfer of assets takes place to a legal entity without operating assets.50 It should be noted that the entire operation of the partnership or natural person falls under the blocking period, i.e. not only the operating assets taken over by the corporation. This was disputed in the past, which is why the Abs. 3 by the Annual Tax Act 2008 and now expressly the business assets of the assuming legal entity are also subject to business tax liability.51 Although § 18 Abs. 3 UmwStG also the hidden reserves of the assuming legal entity, but para. 3 on assets in Germany within the meaning of § 2 GewStG.52 Sale within the meaning of this provision are transfers for remuneration. This also includes swap-like operations, such as a transfer pursuant to § 20 UmwStG.53 In addition, the entire operation does not have to be sold; instead, it is sufficient if all essential operating bases are sold in order to trigger the blocking period. By contrast, the sale of individual operating bases is harmless.54 Also a free transfer acc. § 6 Abs. 3 EStG, for example within the framework of the anticipated succession, does not constitute a sale within the meaning of § 18 para. 55 If the previous commercial activity is definitively discontinued and all essential operating bases are transferred to the private assets and/or sold to various acquirers, there is a harmful operating task.56 The prerequisite for the sale or abandonment of the business is in accordance with § 18 para. 3, p. 2 UmwStG is also complied with if a part-operation or a share of the company is sold or abandoned.57

A task or sale is pursuant to § 18 para. 1 UmwStG only harmful if it takes place within five years after the conversion. The period begins at the expiry of the tax transfer date and is full five years. When assessing whether a situation still falls within the five-year period, the date of the transfer of economic ownership is indisputable for divestments. The situation is different for tasks. Here, the tax administration intends to take into account the date of the first objective action aimed at the dissolution of the company after the task decision. The prevailing literature, on the other hand, wants to focus on the last partial act, such as the extraction of the last essential operating basis.58

§ 18 para. 3 UmwStG also presupposes the attainment of a task or capital gain, which is why it is not applicable to a task or capital loss.59

2. legal consequences

If all requirements are met, are subject to § 18 para. 3, p. 1 UmwStG any gains from business tax on cessation or disposal. It is irrelevant whether the assuming legal entity is subject to trade tax. Similarly, whether the transferring legal entity was liable to trade tax and whether a transfer or capital gain would have been subject to trade tax. 3 UmwStG establishes its own trade tax liability.61 When applying the provision, the hidden reserves are not taken into account at the time of conversion, but at the time of abandonment or disposal. Unlike the other blocking periods regulated in the UmwStG, the conversion process itself is not re-taxed here. However, hidden reserves that were formed after the conversion are also subject to the para. 3.62 Taxpayer is in principle the assuming legal entity. Also in the case of a sale of a share of the co-entrepreneur, the acquiring partnership tax debtor.63 It should also be noted that § 18 Abs. 3, p. 3 UmwStG the part of the trade tax measurement amount of the profit on the task or disposal within the meaning of § 18 para. 3, p. 1 and 2 UmwStG shall not be taken into account in the income tax reduction of § 35 EStG.64

V. Lock period for transfer to a corporation

§ 22 UmwStG contains two blocking periods for transfers to a corporation or cooperative. In the case of contributions in kind within the meaning of § 20 para 1 UmwStG, in which a business, part-operation or co-entrepreneur share is contributed to a corporation or cooperative against the granting of new shares in the acquiring company, there is the possibility of a tax-advantaged contribution.65 Upon request, according to § 20 para. 2, p. 2 UmwStG, the operating assets are recognised at the book value or an interim value if the corresponding conditions are met.66 In addition to these contributions in kind, it is also possible to transfer shares in a corporation or cooperative into another corporation or cooperative against the granting of new shares in the acquiring company within the framework of an exchange of shares.67 In the case of a qualified exchange of shares, acc. § 21 Abs. 1, p. 2 UmwStG also permits the recognition of the shares transferred at book or intermediate value upon request. According to the legal definition of the qualified share exchange in § 21 para 1, p. 2, no. 1 UmwStG, this exists if the acquiring company, on the basis of its participation, including the shares transferred, demonstrably has directly the majority of the voting rights in the company whose shares were transferred after the transfer.68

If a corresponding contribution in kind or a share exchange had now taken place below the common value, the sale of the received or transferred shares acc. § 22 UmwStG of a blocking period. Section 22(1) of the UmwStG concerns the sale of the shares received by the transferor within seven years of the date of the transfer. The sale of the transferred shares by the acquiring company is regulated by § 22 para. 2 UmwStG.69

First sale of the shares received by the contributor

Thus a harmful sale of the received shares within the meaning of § 22 para. 1, p. 1 UmwStG, it must be new shares received within the framework of a contribution in kind according to § 20 para. 1 UmwStG. In addition, § 22 UmwStG am. § 25 S. 1 UmwStG also apply if a change of legal form of a partnership into a capital company or cooperative has taken place. The requirement is always that the contribution was made at a value below the common value.70

Another requirement is that it must be a sale. Whether a capital gain is achieved is not relevant.71 In the case of a free transfer, such as a donation, there is a free legal succession within the meaning of § 22 Abs. 6 UmwStG and the legal successor replaces the contributor or the acquiring company. In the case of partly paid transfers, a division is made into a fully paid sale and a fully free transfer, in proportion to the value of the transferred shares in return.72 In § 22 para. 6 of the UmwStG, several so-called substitute realization facts are finally listed. 73 Such substitute realisation events would be, for example, the free transfer of the shares to a limited liability company or cooperative in the form of a hidden contribution (No 1).74 Another example would be the dissolution and winding up of the limited liability company in which the shares exist (No 3).75 Instead of extending the operative event of the sale, there is an exception to the contrary in S.6. In principle, a transfer as an exchange-like operation constitutes a sale. But by p. 6, no. 2, the subsequent contribution of the shares received in the form of a contribution in kind or the exchange of shares does not constitute a harmful sale. Provided that the submitter proves that the operation was carried out at book values.76

The misuse provision presupposes that the contributor or his legal successor is the seller of the received shares.77 In addition, the harmful transaction must take place within the seven-year blocking period. The deadline shall be calculated on a year-by-year basis and shall start at the time of submission. It should be noted that in the case of a free legal succession, the period of the legal predecessor is continued by the legal successor and no new blocking fist begins to run.78 During the blocking period, the contributor or his legal successor acc. § 22 Abs. 3, p. 1 UmwStG annually provide proof to which the received or transferred shares and the shares based on these shares are attributable. If the proof is not provided, the shares apply according to § 22 Abs. 3, p. 2 UmwStG as on the following day or the calendar day corresponding in the following years.79

If all requirements are met, § 22 para. 1, p. 1 UmwStG provides for retroactive taxation of the transfer operation in the marketing year of the transfer. This retroactively taxed profit is called profit I. The interested parties are presented retroactively as if the transfer of the operating assets had originally taken place at the common value and with the discovery of the hidden reserves. In addition, the transfer profit I gem applies. § 22 Abs. 4 UmwStG as subsequent acquisition costs of the shares received, which of course has an impact on the result of the sale of the harmful disposal of these shares.80 The determination of the transfer profit I results from § 22 para. 1, p. 3 UmwStG, whereby p. 5 must also be observed. If shares in corporations or cooperatives are also contributed within the framework of the contribution in kind, they are subject to § 22 para. 2 UmwStG. In calculating the transfer profit I, the starting point is the common value of the assets transferred at the time of the transfer, minus the common value of any shares in corporations included therein. This is reduced by the costs of the capital transfer and the valuation of the operating assets of the acquiring company, whereby any shares in corporations included must also be excluded here. The resulting subtotal shall be reduced by one-seventh for each year elapsed since the date of the transfer. The remaining amount is the contribution profit I.81 If only part of the received shares are sold, only a proportional contribution profit I is determined.82 The taxation of the profit I depends both on the person of the contributor and on the nature of the business. In the case of a natural person subject to income tax as a contributor, the profit I is subject to capital gain within the meaning of §§ 14, 16 or 18 para. 3 EStG of income tax. In addition, according to § 22 Abs. 1, p. 1, Hs. 2 UmwStG the preferential provisions of § 16 para. 4 and § 34 EStG.83 The same also applies to para 2 (§ 22 para 2, p. 1, hs. 2 UmwStG). The profit I, on the other hand, is subject to corporation tax if a person liable for corporation tax is a contributor.84 In the case of business tax, it depends on whether the sale of the object of the contributor is itself liable to trade tax. If the contributor is, for example, a GmbH, trade tax applies. In the case of a contribution by an OHG, for example, as far as a natural person is directly involved, no trade tax is incurred.85 The subsequent taxation of the profit I applies in accordance with § 22 para. 1, p. 2 UmwStG, as a retroactive event within the meaning of § 175 para. 1, p. 1, No. 2 AO. Therefore, the tax assessments of the contributors concerned must be amended for the assessment period of the time of the transfer and the following years.86 The reference in para 2, page 2, also applies to subsequent taxation within the meaning of para. 2 as a retroactive event.87

2nd sale of the shares transferred by the acquiring company

§ 22 para. 2 UmwStG regulates the sale of transferred shares by the acquiring company and is structured similarly to para. One of the requirements is in accordance with § 22 Abs. 2, p. 1 UmwStG, that the shares in a limited liability company or cooperative are transferred in the context of a contribution in kind or an exchange of shares.88 In addition, the shares must have been transferred below the common value, the actual recognition being decisive for the acquiring legal entity.89 Allerding is para. 2 only applicable if the transferor does not recognise the common value of the transferred shares as the selling price and the cost of the received shares. If the contributor has already sold his received shares, the requirement acc. § 22 Abs. 90 What is harmful is the direct or indirect sale of the shares transferred by the acquiring company or its free legal successor as seller. The sale within the meaning of para 2 corresponds as far as possible to that of para. 1, where it has been extended here by indirect sales.91 The substitute events of § 22 (1), p. 6, No. 1 to 5 UmwStG apply acc. § 22 Abs. 2, p. 6 UmwStG correspondingly for para. 2.92 A further condition is that, in the event of a sale at the time of the transfer, the transferred shares are not transferred to the transferor in accordance with § 8b para. 2 KStG may have been tax-free.93 This would be the case, for example, if the submitter is a natural person.94 Furthermore, the legal consequences of para. 2 only if the harmful process takes place within the blocking period. This is also seven years and begins to run at the time of submission. When assessing harmful disposals, the transfer of economic ownership of the transferred shares is relevant at the time of disposal.95

If all requirements are met, it also occurs in the case of § 22 para. 2 UmwStG for a retroactive taxation of the profit from the contribution in the assessment period of the contribution. Here one speaks of the so-called transfer profit II.96 The determination of the transfer profit II is in § 22 para. 2, p. 3 UmwStG, wherein the common value of the introduced shares at the time of introduction represents the initial variable. From this, the costs of the transfer and the valuation of the shares received by the contributor are deducted. The resulting intermediate value shall be reduced by one-seventh for each year which expires after the date of the transfer, in the same way as for the transfer profit I. If the transferred shares are only partially sold or if the received shares have already been partially sold by the contributor, the transfer profit II is only determined proportionally.97 The taxation of the transfer profit II is carried out in the same way as the transfer profit I is carried out by the transferor, although the acquiring company has carried out the harmful sale.98 A further legal consequence is pursuant to § 22 Abs. 2, p. 4 UmwStG, that the contribution profit II is regarded as the subsequent acquisition costs of the shares received by the transferor.99

It should also be noted that in the event of retroactive taxation of a contribution profit I or II, the acquiring company has the possibility of a tax-neutral book value increase acc. § 23 para 2 UmwStG. The purpose of this provision is to prevent double taxation of the same hidden reserves. However, the application of § 23 Abs. 2 UmwStG subject to various conditions. First of all, according to p. 1 and 3, that the contributor has paid the tax due on the contribution profit.100

VI. Closure period for transfers of assets to a partnership

The last blocking period of the UmwStG is in § 24 para. 5 UmwStG. § 24 UmwStG regulates the transfer of companies, subsidiaries and co-entrepreneur shares to a partnership, such as an OHG or a limited partnership, if the contributor becomes a co-entrepreneur in the partnership (§ 24 para. 1 UmwStG.101 Upon request, § 24 para. 2, p. 2 UmwStG for the transferred assets a recognition with the book value or an intermediate value is possible.102 The misuse rule applies if, in the context of such a contribution, shares in a corporation, association of persons or assets are also transferred below the common value and later sold. Several conditions must be met for the application of the blocking period. First of all, as already mentioned, it must be shares in, for example, a GmbH that have been transferred to a partnership below the common value.103 The transferred shares must be sold. This refers to the transfer of economic ownership to another legal entity in return for payment. In principle, the sale corresponds to § 24 Abs. 5 UmwStG that of § 22 UmwStG. The same substitute realization facts apply as in § 22 para. 2 UmwStG.104 In addition, the sale must be made by the acquiring partnership.105 The blocking period in which a sale is harmful is seven years and begins at the time of transfer.106

Another mandatory requirement is that the contributor, just as in the case of § 22 para. 2 UmwStG, to a not by § 8b Abs. 2 KStG beneficiary person must act. Therefore, § 24 Abs. 5 UmwStG to be applied if the contributor was, for example, a natural person.107 While the contributor was therefore not obliged by § 8b para. 2 KStG, the blocking period is to be applied only insofar as the profit from the sale of the transferred shares is reduced to a value according to § 8b para. 2 KStG beneficiary person not applicable. A corporation such as a GmbH must therefore be involved in the partnership. The only relevant factor is whether the entity is a co-entrepreneur of the partnership at the time of the sale of the transferred shares and has a share of the capital gains. Whether the corporation was a co-contractor of the partnership at the time of the transfer, however, is irrelevant. The date of realisation of the capital gain is decisive for the assessment of the co-entrepreneurship and the amount of the capital gains shares. Only insofar as the capital gain is attributable to a corporation as a co-entrepreneur does the misuse provision apply.108 These two factual requirements constitute the purpose of the provision. It is to be prevented that there is an improvement in the tax status if shares are transferred indirectly to a corporation within the framework of a transfer to a partnership.109 Therefore, the misuse provision applies if the indirect participation of a company as defined in § 8b para. 2 KStG Non-beneficiaries in favour of a person covered by § 8b para. 2 KStG beneficiaries reduced.110

The legal consequence if all the requirements are met is the corresponding application of § 22 para 2, 3 and 5 to 7 UmwStG. There is retroactive taxation of the transfer profit II at the transferee, which is also a retroactive event within the meaning of § 175 para. 1, page 1, No. 2 AO. It should be noted that the transfer profit II is calculated in proportion to the capital gain attributable to the shareholder in the partnership.111 The transfer profit II also represents an ex-post cost of the transferor’s shares in the partnership.112

VII. Conclusion

In this seminar paper, the various blocking periods of conversion tax law were explained in the order of their position in the UmwStG. The focus of this seminar work was on the general use cases of the blocking periods in the UmwStG. For this purpose, the individual blocking periods with their respective criteria and legal consequences were discussed in chronological order. It turned out that the first three abuse regulations all have a five-year lock-up period. In the meantime, the abuse provisions for transfers to corporations (§ 22 para 1 and 2 UmwStG) or to partnerships (§ 24 para 5 UmwStG) have a seven-year blocking period. The purpose of all six blocking periods is to prevent beneficiary conversion operations from circumventing adequate taxation.113 In addition, the blocking periods of the conversion tax law have in common that, with one exception, they all constitute retroactive effects for the past. Only § 18 Abs. 3 UmwStG does not constitute a tax retroactive effect in the classical sense, but leads to a continuing trade tax entanglement of the acquirer’s assets.114 Finally, although the UmwStG provides various possibilities for a tax-advantaged restructuring of companies, the participating legal entities may also be subject to restrictions due to any blocking periods in the following five or seven years. For this reason, entrepreneurs must also consider possible subsequent restructuring operations before applying any election rights and conclude appropriate contracts in order to avoid harmful operations. For example, in the case of the blocking period of § 22 para 2 UmwStG, which is triggered by a harmful sale by the acquiring company, but the retroactive additional tax burden affects the contributor. From the point of view of the contributors, it is advisable that the contributor contract contains provisions that prevent harmful operations or provide for corresponding compensation for the contributors.115