date | theme

21. December 2015 | The profit transfer agreement as a prerequisite for the income tax organization

15. July 2017 | Organising at GmbH

25. February 2020 | The organization in income tax law: its structure and its advantages and disadvantages

12. November 2021 | Group taxation in Austria & German bodies in comparison

29. August 2022 | Deposit solution for organs: This is how the correction of the profit transfer works (§ 14 para.) 4 KStG)(this contribution)

In the case of income-tax organs, deviations in the profit transfer or loss assumption under commercial law for the tax attribution of profit or loss can result in excess transfers or losses. This may result in double taxation or non-taxation of the amounts concerned. Until now, the problem has been solved by the creation of balances, which, however, can have a tax deferral effect. Through the Act for the Modernisation of Corporate Tax Law (KöMoG), the legislature has therefore introduced the so-called contribution solution in § 14 (4) KStG. We explain how it works.

1st background to the deposit solution

1.1. Emergence of multiple discharges or minor discharges

The background to the problem of over-transfers and under-transfers in income-tax organizations is that the commercial law principles of proper accounting according to § 5 (1) sentence 1 EStG are indeed the basis for the tax profit determination of traders. Nevertheless, this principle of decisiveness is breached in many places by special tax regulations. As a result, the profit of the organ company determined in accordance with commercial law principles, which is to be paid to the organ carrier on the basis of the profit transfer agreement, may deviate from the amount attributed to the organ carrier in accordance with § 14 KStG. Due to such deviations, double taxation or non-taxation of the differential amounts may occur, in particular in the event of a subsequent sale of the organ company. However, it follows from the regulatory purpose of the corporate tax rules that the organ carrier has to tax the income of the organ company (at least/only) once.

1.2. Commercial profit transfer and tax attribution

§§ 301, 302 AktG shows the amount to be paid by the organ company to the organ carrier in the case of an existing profit transfer agreement, or the loss to be compensated by the organ carrier. This is based on the amounts determined under commercial law rules. The organ carrier therefore actually receives an amount determined in accordance with commercial law rules from the organ company in the transfer of profits or has to compensate for a loss determined in accordance with commercial law rules in the context of the loss assumption.

On the other hand, the tax income attributable to the organ carrier is calculated on the basis of the tax profit of the organ company plus off-balance-sheet additions and minus off-balance-sheet statements. The amount of the profit transfer or loss assumption under commercial law, on the other hand, does not enter into the taxable income. Since the commercial profit of the organ carriers is not determined in accordance with the same rules as the tax profit and income, there may therefore be discrepancies between the amount of the profit to be transferred, the tax profit and/or the income of the organ carriers.

Therefore, there is a difference between the annual profit actually paid or the deficit actually compensated and the tax profit of the organ company included in the allocated income. This is intended to prevent the insert solution.

1.3. Legislative solution: Deposit solution

With the KöMoG, the legislature has made the switch from the hitherto used accounting method to the so-called deposit solution in the case of excess and minority transfers, the cause of which lies in the organic period. As of the investment period 2022, therefore, reductions lead to a concealed, fictitious contribution of the organ carrier to the organ company (§ 14 (4) sentence 1 KStG). In this context, losses are those for which the commercial profit transfer is lower than the tax allocation. If, on the other hand, the profit transfer under commercial law is higher than the tax allocation, there is an excess transfer. Then, according to § 14 (4) sentence 2 KStG, a deposit guarantee is made.

2. pre-organic deviations

Pre-organic deviations are those that were realized before the fiscal effectiveness of the organ. The derogation must be linked to a transaction carried out by the end of the last marketing year in which the institution did not yet exist and which is the cause of the differences in payment during the institution. Whether the difference has its cause in pre-organic time is determined by the reason for the excess or partial removal and whether this reason can be traced back to the pre-organic time. An actual flow of assets is therefore not necessary for determining the period.

In case of pre-organic deviations, not the deposit solution applies, but § 14 (3) KStG.

If the cause of an overpayment is in the pre-organic period, it shall be deemed to be a distribution of profits by the organ company to the organ carrier in accordance with § 14 (3) sentence 1 KStG, whereby the box privilege of § 8b (1) and (5) KStG or § 3 no. 40 EStG shall apply.

If, on the other hand, there is a pre-organic reduction, it constitutes a contribution of the organ carrier in the amount of the reduction in the organ company according to § 14 (3) sentence 2 KStG. This is based on the idea that, although the amount of the reduction is actually paid to the organ carrier under commercial law, it is then immediately deposited under covert cover in the organ company, with the result that the acquisition costs increase accordingly.

3rd deposit solution

3.1. Deposit solution and overpayment

Excess payments which have their cause in organic time are in accordance with § 14 (4) sentence 2 KStG in full as deposit guarantee of the organ company to the organ carrier. The level of participation of the organ carrier in the organ company is therefore not important.

In the trade balance of the organ carrier, it remains when the claim under the profit transfer agreement and the resulting income is recorded. The tax balance of the organ carrier therefore continues to deviate from the tax balance due to the recasting of § 14(4) KStG in the case of overpayment. The scheme of tax income determination of the organ carrier remains unchanged in this respect.

The amount of the deposit refund is to be offset against the book value of the shareholding in the tax balance sheet. If, however, the overpayment exceeds the book value of the holding, the institution’s own taxable income shall be equal to the amount exceeded. It is questionable whether the beneficiaries of § 3 no. 40 EStG or § 8b KStG apply to this amount, because the law does not contain any regulation for this case. The BMF has joined, affirms the application of the rules in cases where the excess transfer exceeds the book value of the participation.

This direct taxation of excess transfers is a material difference from the previous treatment of passive offsets, which had to be dissolved in the event of a sale of the shareholding in the organ company. The tax deferral possible according to the previous legal situation is thus excluded in the future.

3.2. Deposit solution and reduction

Minor remittances of the organ company which have their cause in organic time are to be treated as a contribution by the organ carrier to the organ company.

At the level of the organ carrier, this leads to an increase in the acquisition costs of the participation in the organ company and thus to an increase in the book value. A yield shall be recorded at the same level. This income reflects the difference between the commercial income transferred and the attributable income of the organ company and increases the income. However, the legal wording of § 14 (4) sentence 1 KStG does not provide for neutral treatment by an off-balance-sheet reduction of income.

However, an increase in the equity book value in the deposit solution is incorrect. In particular, this would result in a significant tightening up.

4. Effects of the Deposit Solution on the Tax Balance

According to the new regulation of § 14 paragraph 4 KStG in conjunction with § 34 paragraph 6e KStG, the obligation to form compensatory items ends at the latest with the preparation of the final balance sheet of a marketing year ending after 31.12.2021.

Due to the statutory fiction, shortages caused in the organic period are considered a contribution to the organ company. On the other hand, the extra discharges caused in organic time are considered as deposit guarantees back to the organ carrier. This is not done in proportion to the shareholding, but in full. The new regulation means that extra transfers and less transfers caused in organic time now lead to a change in the tax book value of the organ contribution. Lower and excess payments increase or reduce the holding book value of the organ company in the tax balance sheet of the organ carrier and correspondingly the tax deposit account at the level of the organ company. In the case of organ carriers in the legal form of a partnership, the corresponding changes shall be made in any additional balance sheets. In the trade balance there are no changes to the previous practice. The book value of the participation therefore remains unchanged.

According to previous legislation, according to R 14.8. The fourth sentence of paragraph 3 KStR summarizes the special tax offsets for the sale of the organ shareholding with the shareholding book value. Similarly, the tax offsets were not terminated at the end of the profit transfer agreement. Materially, the transition to the deposit solution has no effect in this respect. However, material effects arise if the excess transfer to be offset exceeds the existing book value of the holding. The change in the law is therefore directed in particular against so-called overdraft schemes, which could lead to a permanent tax deferral under the balance sheet solution.