From a tax point of view, the first step is to check whether the outgoing and divesting co-entrepreneur realises the fact of a profit realisation through his sale. This results not only from the sale of the actual shareholding, but usually includes the special and supplementary balance sheets of the shareholder. The capital gain is calculated for the co-entrepreneur according to § 16 Abs. 1 S. 1 No. 2 EStG from the difference from the right to severance pay less the book value of its capital account, reduced by its costs of disposal. Its book value therefore represents the sum of the capital account held in the company’s total manual balance sheet and its surplus or short capital in its supplementary balance sheet. In addition, there are also proceeds from the discovery of the hidden reserves in the special business assets, if these are sold or transferred to private assets. [] 18)

“Economically, the outgoing co-entrepreneur sells his immaterial interests in the individual assets recognised and unrecognised”[19] in the total assets and his special assets. If the severance payment amount corresponds to the book value of his tax capital account, the sale for him is to be carried out tax-neutrally. If the sale amount exceeds this book value, it generates a capital gain according to § 16 para. 2 EStG. Since the co-entrepreneur is to be treated according to the will of the legislator in the sale of his co-entrepreneur's share according to the same standards as a sole proprietor in his business sale, his profit on sale is determined according to § 16 para. 1 S. 1 No. 2 EStG declared commercial income. Subsequently, the income is separated into those from current activities and those from sales, thus exclusively for the latter the beneficiary regulations according to § 16 para. 4 EStG and § 34 Abs. 1 EStG or § 34 para. However, a prerequisite for the use of the two exemption regulations is the realization of all hidden reserves of the co-contractor, i.e., those which are attributable to him via the total assets and those from his special assets. [] 21]

If, however, the severance payment entitlement is less than the book value of the tax deposit account, the shareholder will incur a loss on disposal which, according to § 10d EStG, can be compensated and deducted with income from other types of income.

The co-entrepreneurship of the shareholder is of fundamental importance in the above-mentioned cases. According to § 16 para 1 s. 1 no. 2 EStG, the co-entrepreneurship presupposes commercial or commercial income with the shareholder. The freelance as well as the agricultural and forestry activity as a co-entrepreneur becomes such only by requalification in accordance with § 18 para. 3 EStG or § 14 EStG. According to BFH, however, the share in a partnership managing assets cannot constitute a co-entrepreneurship. [22] The absence of co-entrepreneur status in the latter case thus prevents the use of the benefits according to § 16 para. 4 EStG or 34 EStG, since their use is linked to equal treatment with individual entrepreneurs and thus with commercially active ones.

1.3. no business tax on the sale of the entire share of the co-entrepreneur

In the field of trade tax, it should be noted that only the complete sale of the co-entrepreneur share is not recorded (R. 7.1 GewStR), but the sale of a share in the shareholding is considered to be a current profit and must be subject to trade tax. [] 23]

1.4. Taxation with shareholders

Since German tax law follows the civil law principle that partnerships do not have their own legal personality regardless of their status as a commercial company, taxation is to be carried out on the basis of the shareholders on the basis of the lack of income or corporate tax subject status. At this level, the income is allocated proportionally to the shareholders as original income and is subject to their respective income tax (transparency principle). [24] According to this, the commercial partnership generates income according to § 15 EStG both on the sale of its shares in a limited company and on the sale of shares in another partnership, which income is then taxable at the level of the shareholders according to the partial income procedure. [] 25]

1.5. Risk: Business loss is lost!

The sale of a co-entrepreneur share to the remaining shareholders of the partnership or to a third party has, similar to the corporation, no income tax consequences at the company level, since the assets are continued in the partnership’s total manual balance sheet. Only the capital account of the divesting partner either becomes the property of the acquirer or grows to the other shareholders. Since the shareholder is the tax subject in a partnership for income tax purposes, the current losses of the company as well as any loss carry-forwards according to § 10d EStG remain arrested by the old shareholder on the basis of personal taxation. However, this situation does not apply to trade tax losses according to § 10a GewStG, because the tax subject here is the partnership. On the basis of the co-entrepreneur-related determination of the trade tax loss carry-forward, the deduction amount attributable to the retired shareholder is lost in the amount of his percentage shareholding for the company. On the other hand, the loss carry forward in years with trade tax profits can only be used in accordance with the profit distribution key of the remaining shareholders.

2nd tax-optimized sale of the partnership (GmbH & Co. KG)

2.1 Sale of the asset management partnership

The partnerships (GbR, oHG, KG or GmbH & Co. KG) were basically divided into asset management and commercial. From the point of view of tax optimization, the former are comparable to the shares in corporations held in private assets: the participation is usually only weak in value, the shareholder usually does not want to expand the economic activity of the company and for the shareholders is not suitable an imprint towards a commercially active company, since the disadvantages and costs cover the advantages. Tax optimization is virtually impossible in this area.

2.2 Sale of the commercial partnership (GmbH & Co. KG)

Commercial partnerships owned by natural persons are better suited for tax optimization purposes. As co-entrepreneurs, they are entitled to the exemption regulations for the sale of shares. In addition, approximately the same conditions apply here as for the partnership as a participant in a limited liability company. This means that an intermediate holding company in the form of a corporation[33] would be a useful addition as a link between the shareholder and the co-entrepreneurship. On the one hand, the economic activity of the partnership does not directly affect the income tax burden of the shareholder, on the other hand, company acquisitions and company sales can be carried out at the level of the holding company, which in turn has only corporate tax effects, but no income tax effects. However, here also individually according to the needs and wishes of the co-entrepreneur must be weighed.

2.3 Double-storey partnership

If a partnership holds a co-entrepreneur share in another partnership, then in any tax optimization there is basically the problem of coordinating the interests of the individual co-entrepreneurs. This problem naturally affects a double-storey partnership to a greater extent, since the group of co-entrepreneurs does not necessarily have to correspond to that of the upper company. A second problem arises in the area of the missing control subject property. In order to partially prevent the penetration of economic events at the income tax level of the shareholders, the interposition of a holding company (according to § 20 UmwStG)[34] in the form of a corporation between partnership and participation is recommended here again.[35] The share exchange then takes place between the parent company, which contributes its shares in the shareholding to the holding company, and the holding company, which in return makes its shares available. Similarly to § 21 UmwStG, there is also a recognition or valuation option in § 20 UmwStG for the share exchange of a co-entrepreneur share for shares in a corporation. On request, the contribution to book values and thus tax-neutral is also possible here. The aim of this transformation is, in turn, to create a company that acts as a buyer and seller for further investments and at the same time prevents all activities from being transferred directly to the shareholder level. This construct, in which the co-entrepreneur participates in an operational partnership through the partnership through the intermediary holding company, has the further tax advantage that he does not generate income according to § 17 EStG, which would be subject to exit taxation in the event of a longer stay abroad in accordance with § 50i EStG. However, the prerequisite for this is the consensus of all co-operators in the upper company on these tax adjustments.