date | theme

21. August 2020 | Converting individual companies: GmbH versus GmbH & Co. KG

12. July 2020 | Conversion of the GmbH into a GmbH & Co. KG: Closure period 5 years!

22. April 2021 | Option model for corporate tax for OHG & KG – new law

04. November 2021 | Option model for partnerships: Consideration of problem areas

01. April 2022 | Option model for corporate tax: You have to pay attention to this at GmbH & Co. KG! (this contribution)

§ 1a KStG allows partnerships to be taxed like a corporation on request, so-called option model. Since a GmbH & Co. KG is also a partnership according to its legal nature, it can also make use of the option. We explain the consequences of the option model at a GmbH & Co. KG and what you absolutely have to pay attention to in advance so that you can opt tax-neutral.

partnerships may be treated as corporations for income tax purposes while retaining their original legal form. The option model represents a fictitious conversion, which is to be treated according to the rules of form-changing conversion according to § 25 UmwStG. The effects of the option result from § 20 paragraph 2 UmwStG. If the requirements of § 20 UmwStG are met, the contributor has the right to choose between a valuation approach to the common value, an intermediate value or the book value. Therefore, the option can be tax neutral.

According to § 1a KStG, the option requires an application from the partnership to the competent tax office. Thereafter, at the beginning of the new marketing year, the change to corporate tax has taken place. Despite this, the company remains a partnership under civil law. After the end of a marketing year, a return option for taxation as a partnership is also possible. Contributor within the meaning of § 20 UmwStG is not the opting partnership, but its shareholders. They each share their share of the company.

According to § 1a KStG, the partnership must be a partnership engaged in an agricultural, forestry, commercial or professional activity. A GmbH & Co KG is always commercial strength of its character. Nevertheless, problems may arise with regard to the tax treatment of GmbH & Co. KG in the case of the option for corporate tax. There are three case groups. Sometimes the general manager-GmbH may or may not be involved in the limited partnership assets. On the other hand, the limited partners of the KG can also be shareholders of Komplementär GmbH.

The option is only at the request of the partnership. At a GmbH & Co. KG, the general managers of Komplementär-GmbH apply. Only if the GmbH is excluded from the management, the managing limited partners make the application.

In order for the option model for GmbH & Co. KG to be tax-neutral, the requirements for a contribution according to § 2o UmwStG must be met. A prerequisite for the tax-neutral contribution is therefore that all the essential operating bases of the co-entrepreneur share are transferred to the company assets of the opting company as a result of the fictitious conversion. In order to do so, all essential operating bases must be transferred to the company.

Each limited partnership has made a capital contribution to the limited partnership. In the balance sheet of a partnership opting for corporation tax, the capital accounts of the shareholders are to be combined into a single tax deposit account. All capital injections made by the shareholders in the course of a marketing year shall be recorded therein. The capital accounts and reserve counters of Komplementär-GmbH are also to be transferred to this tax deposit account at the time of the option.

Professional advice on the option model for partnerships?

The GmbH may participate in the assets of the limited partnership. As a result of the option, the entire profit of the limited partnership is subject to corporate tax, i.e. also the profit share of the general partnership GmbH. Therefore, the profit withdrawn or the profit which can be withdrawn from the shareholders and from the general shareholder GmbH must be treated as dividend income which is subject to capital gains tax. However, according to § 8b KStG, Komplementär GmbH is in principle exempt from capital gains tax with regard to this box participation. However, this requires a participation of more than 10 percent. Otherwise, the payment to Komplementär-GmbH is also subject to capital gains tax.

According to § 15 (1) sentence 1 no. 2 half sentence 2 EStG, the co-entrepreneurs of a partnership can receive so-called special remuneration. This comes into consideration if the GmbH receives an activity compensation in the form of a profit advance. Since this profit advance is dependent on the profit of the limited partnership, it must be counted as the profit share. However, if the activity remuneration is paid regardless of profit, the opting partnership is a business expense that reduces the limited partnership’s corporate income tax income.

In addition, Komplementär-GmbH can also receive a salary for its management activities. This is then an operating expense for the limited partnership, as far as the salary is appropriate. If, on the other hand, it is not adequately measured, the salary constitutes a hidden distribution of profits.

A tax-neutral transition to the book value approach without discovering the hidden reserves is only possible if the contribution covers all the essential basics of the shareholder share. This includes special assets. Special operating assets are available when the general partner GmbH makes its own assets available to the limited partnership, which become the main operating basis.

This special assets is not a company asset and does not belong to the operating assets of the limited partnership even with the option model. Rather, this requires the asset to become the property of the limited partnership. If, on the other hand, special assets are retained, the option is effective. Nevertheless, the special operating assets are transferred, then either into private assets or into the operating assets of the GmbH. This transfer to private assets is not tax-neutral. Instead, the hidden reserves are discovered.

The situation is different only if the general partner GmbH leaves the limited company its own operating assets and not the assets of its shareholders. Then this will not become private assets as a result of the option, but will be transferred according to § 6 (5) sentence 2 EStG into another operating assets of Komplementär-GmbH at book value. In addition, the blocking period of § 6 (5) sentence 4 EStG of 3 years must also be observed. Therefore, a subsequent taxation may take place if the asset has already been transferred in advance according to § 6 (5) sentence 3 EStG. The value at that time applies and not a favourable tax rate.

If Komplementär GmbH is not involved in the assets of the KG, there is still a co-entrepreneurship. Therefore, the limited partnership’s assets do not belong solely to the limited partner. The reason for this is that as Managing Director, Komplementär-GmbH develops entrepreneurial initiative, bears the personal liability risk and the activities of the limited partnership are carried out on a joint basis.

According to the option of the limited partnership for corporation tax, the company is treated as its shareholder even though it does not participate in the company assets. Taken profits are treated as dividends. Since Komplementär-GmbH is not involved in the assets of the optenden KG, the tax exemption of § 8b KStG does not apply to any distributions.

Due to the lack of capital participation of the GmbH, the GmbH has no share that it could contribute to the fictitious capital company. Therefore, only the limited partners contribute their co-entrepreneur shares.

If the GmbH has transferred special assets to the KG for use, this is removed from the operation of the KG with the option of the KG. Nevertheless, it remains in the operating assets of the GmbH. Therefore, there is a transfer from the special business assets to another business assets, which takes place according to § 6 (5) sentence 2 EStG at book value, i.e. tax-neutral.

Our last case is the problematic case. In this case, the limited partners of the limited partnership are also involved in the general partnership. Then the share of the limited partner in the GmbH belongs to his special business assets and is therefore part of his co-entrepreneur share in the limited partnership. The change of legal form, which is fictitious in the case of the option, concerns only the company assets and not the special business assets. Therefore, the share of the limited partner in the case of the option will in principle be his private assets.

A tax-neutral contribution according to § 20 UmwStG requires, however, that all essential foundations of the co-entrepreneur share be transferred to the company assets of the optenden KG. The limited partner’s share of the GmbH is basically an essential basis for the share of the co-entrepreneur. If this is not therefore introduced, this does not conflict with the option. Nevertheless, according to § 20 paragraph 2 UmwStG, this can not be done tax-neutrally. Then the GmbH share would belong to the private assets of the limited partner. Nevertheless, he could then avail himself of the tax advantage of §§ 16 (4), 34 (1), (3) EStG.

Of course, there are ways to make the option tax neutral. First, the limited partner could transfer the participation in the GmbH to the limited partnership. Then the KG becomes a shareholder of its shareholder. This creates a Einheits-GmbH & Co. KG. If the functionally essential operating bases associated with special operating assets are transferred separately to the opting partnership in the temporal and economic context for the option, there is no additional contribution within the meaning of § 6 (5) sentence 3 EStG, which would trigger in particular the blocking period. Rather, this constitutes a uniform economic operation within the meaning of § 20 UmwStG.

Another option for a tax-neutral option would be to transfer the assets of the special business assets to another business asset. But this is where the overall plan comes in. It can therefore be safer in individual cases for a tax-free option model to transfer the assets to the limited partnership.