The basic fact of material interdependence is so legitimate that the holding company of the operating company must leave at least one essential operating basis[29] for use. The property does not have to be owned by the holding company, but can also be rented or leased by the company. [30] The rental of the asset from third parties and the transfer of rights of use to the operating company also fulfils the objective interdependence. [31]

In the video we show you various strategies to avoid a division of operations in advance, as well as in retrospect or to consciously maintain it.

1. Essential operating basis for material interconnection

1.1 Transfer of use and profit intention

The transfer of use is based either on rental or lease contracts that have a legal effect, or on usufruct or hereditary cultivating right (real law). Furthermore, the amount of the remuneration in return does not constitute a condition of material interconnection. Thus, even a free transfer is sufficient, but the owning company must show a profit intention. [32] According to the case law of the BFH, the profit-making intention with a possible increase in the value of the shares in the operating company on the part of the holding company, despite a free transfer of use, is already fulfilled.[33] A free transfer of use between sister companies, on the other hand, does not lead to any material linkage due to the lack of profit intention. [34]

1.2. The Necessary Need as a Crucial Basis

The decisive factor is the necessary need[35] for the economic good provided by the operating company, which only then identifies the economic good as an essential operating basis for the operating company. [36] In this case, the transferred asset does not have to form the most important essential operating basis for the operating company, a proven necessity of the asset is sufficient in the opinion of the BFH.[37] The classic case is that immovable property is transferred for use. However, movable assets can also constitute an essential operating basis if, for example, a machine is required for the purpose of the operating company. [] 38]

It is not decisive for the question of an essential operating basis whether the economic asset has high or no hidden reserves.[39] Furthermore, an alternative way of procuring the asset on the market is not relevant if the holding company leaves the asset to the operating company for use.[40] The granting of a loan to the operating company also does not justify the fulfilment of the material link. [] 41

The perspective for assessing an essential operating basis is very crucial. An overall view plays the decisive role, since, for example, a plot of land is not divided into its components, but must be regarded as an entire plot of land and thus must be examined in the light of an essential operating basis. [] 42]

The basic fact of factual interconnection appears to be simply defined, but as a rule an individual case examination and decision in practice must clarify the question of factual interconnection, as the following practical cases show.

In the case of an undeveloped plot of land, BFH considers both the right to a possible development on the part of the operating company and the functional connection with the purpose of the operating company to be the decisive criteria for the existence of a material link.[43] From this it can be concluded that expendability on the part of the operating company contradicts the material link. [] 44

2.2 Built-up plot

According to the BFH case law, production land is not an essential operating basis only in certain individual cases. In the majority of cases, the connection of a factory with the operating company is clear, since the purpose of the operating company cannot be fulfilled without production with the help of the factory.[45] Similar uses such as storage or repair halls also count as an essential operating basis. [] 46]

Office and administrative buildings are equivalent to an essential operating base if the building is the centre of the operations of the operating company.[47] The exception to this principle is, for example, a school building which is not used for commercial purposes[48] or the residence of the built-up property in a real estate park, which then generates a secondary value. [49] In any event, the transfer of a built-up property constitutes an essential operating basis if the operating company could not carry out its activities without it. [] 50

2.3. Mixed-use property

A built-up plot of land, which is used both as a production site and as an administrative site by the operating company, is to be regarded as an essential operating basis, except in individual cases. [] 51]

2.4.

By resolution of an inheritance building right contract and the thus incoming entitlement of the operating company to provide the property with constructions which constitute an essential operating basis, the inheritance building right is equivalent to a transfer of an already built-up property which meets the conditions of material interdependence. [] 52]

2.5. Client strain

In 2010, the Munich Finance Court ruled that the transfer of a client base from a self-employed person to a connected GmbH entailed a division of operations, on the grounds that this constituted an essential operating basis for the GmbH. [53] Also for a client base, specifically a tax consultant, the BFH has followed the opinion of the Finance Court Munich. [] 54]

2.6. Intangible assets

Intangible assets, such as patents, are also to be regarded as an essential operating basis if they can be used by the operating company. [55] For a decision whether a patent, a license or a trademark, etc., represents an essential operating basis, is measured according to the case law of the BFH on the basis of the turnover. If the transferred asset generates a share of the turnover of more than 50%, an essential operating basis for the operating company is assumed. [] 56

2.7. study

In cases where a shareholder exercises managing director[57] from his home office the management of a GmbH, in the opinion of the BFH from 1992, the condition of material interdependence exists if the proportion of the used area of the office is above a value of 10% compared to the other used area of the GmbH. On the other hand, the exception is a ratio of less than 10%, so that in this case there is no factual connection. [58] The already mentioned case that the owner company is not the owner of the transferred asset, can also be concluded for the study that a rented apartment / house, with a separate study for the management, meets the requirements of material interdependence. [] 59]