Postponing taxes until the following year sounds tempting to many entrepreneurs. In fact, this is possible more than once in a row. This requires setting up a subsidiary in which the marketing year differs from that of the parent company. Thus, the filing of the tax return is postponed to the following year. In addition, this procedure can also be repeated in the following years, provided that certain aspects are taken into account. Because if this is sought more than twice in a row, then from the point of view of the Federal Finance Court this is to be regarded as an abuse of design. But there are also solutions to this. In addition, both sole proprietorships and partnerships and even corporations can take advantage of this opportunity and thus defer taxes. However, it should be noted that this model is particularly suitable for providing equity in the financing of fixed assets.

Before we come to the beautiful part of our contribution, we would like to recall once again what the usual procedure is for the taxation of a company and the entrepreneurs or shareholders involved in it.

In fact, it is important whether a sole proprietorship or a partnership or a corporation is taxed. For a sole proprietorship or partnership, taxation takes place solely at the level of the entrepreneur or the shareholders. On the other hand, the corporation has to tax its profit itself, with corporate tax and business tax incurred. In addition, the profits distributed to the shareholder or shareholders are also subject to income tax (by capital gains tax, to be precise).

With this refreshed prior knowledge, it is now possible to explain the model with which we can postpone taxes to later years. In principle, this path is open to all types of companies. In order to demonstrate our model using easy-to-understand examples, we will apply it to a sole proprietorship and a GmbH.

Postpone taxes at a sole proprietorship

2.1. Delay taxes in the first year

Start with a sole proprietor whose company has a marketing year following the calendar year. So the entrepreneur has to pay regular taxes for the 2020 financial year in 2021.

Our approach now envisages that the entrepreneur will carry out a change of form of his individual company right at the beginning of the year. In doing so, he transforms his sole proprietorship into a partnership. So let’s assume that now a KG emerges from this change of form. In contrast to the sole proprietorship, however, the limited partnership proposes right at the beginning to follow a different marketing year, which should last for the first time from 01.02.2020 to 31.12.2021. Although this results in a truncated economic year covering the month of January 2020, which must be taxed separately, the remaining eleven months of 2020, together with the result of the following January, will not be taken into account for taxation until 2021. So in this way you have won almost a year in which you are not subject to direct taxation.

2.2. Delay taxes in subsequent years

Since we promised in advance that this procedure can be used more than once in a row, we now have to keep our word and show how the entrepreneur with the limited partnership can also postpone the tax next year.

Basically, the solution is quite simple. The KG establishes a subsidiary at the beginning of 2021 in the form of a further partnership. This time it will be an OHG. And this subsidiary also requests to follow a marketing year which is offset by a further month from that of the parent company. Thus, a marketing year applies to the subsidiary from 01.03.2021 to 28.02.2022. Of course, OHG as a company now continues the economic activity that generates the profit. However, this is only relevant for taxation in 2022. In this way, the entrepreneur wins another year without having to bear the tax burden for this period.

2.3. Deviating marketing years are decided by the tax office

Here is an important condition, with which the model move taxes stands or falls. Because in order to be able to apply a different marketing year, you usually have to run a business. Furthermore, the deviation from the calendar year must be requested from the competent tax office. Only with the approval of the tax office is a different marketing year valid (§ 4a EStG).

Delay taxes at a corporation

Since we have now shown how a sole proprietorship or partnership can postpone the tax, the GmbH should also come to its right as a representative of the corporation.

3.1. Delay tax at a GmbH

You probably already suspect that the method presented above will be very similar at a GmbH. In fact, however, you do not subject the GmbH to a change of form, but you set up a subsidiary right at the beginning, in which you bring the operative business. In this case too, the subsidiary is a partnership. Again, the financial year of the subsidiary deviates by one month from that of the parent company. This also shifts the taxation of profits from February to December 2020 to 2021.

3.2. Postponement of taxes in subsequent years is also possible for corporations

This approach can then be repeated again in the following years and taxes can be postponed again. However, there is something to consider here. Here too, the granting of a marketing year different from the calendar year depends on the decision of the competent tax office. Therefore, there should be valid reasons for this. It is therefore hardly surprising that the argument becomes an ambitious challenge in the following years.

Postponing Taxes May Be Design Abuse

In fact, the model with which entrepreneurs can postpone taxes has already been the subject of proceedings at the Bundesfinanzhof. The judges ruled that it is an abuse of design if you apply the model more than twice.

But there are also solutions for this, which ensure from the outset that the suspicion of misuse of design during tax postponement is avoided. Because if there are certain reasons for choosing the different marketing year, then the financial administration must also accept that there is no abuse of design. And if you really want to be on the safe side from the beginning, you can also think about a request for binding information at the tax office.

We are of course happy to provide you with our outstanding expertise and comprehensive service as part of our consulting activities. Therefore, we look forward to your call.http://Request for binding information

Who uses the model to postpone taxes?

Finally, this time comes the most important hint of our contribution. In what situation does the presented model with which entrepreneurs can postpone taxes make sense?

To anticipate right away, this is not a model with which you can save taxes for a year to cheer it off. Granted, it is quite a tempting thought to pay no taxes for a year in order to use the otherwise due tax amount for private pleasure. However, one forgets that this is not a tax savings model, but a model with which one merely postpones the tax. Thus, the obligation to pay remains in principle. So what is the advantage of the model?

Well, the background is rather that in this way a financial cushion serving the company is created. To be more precise, the tax deferred by one year serves to show an equity with which one can score points in the procurement of external capital in order to purchase assets that entail an increased financial expense. After all, the tax does not appear in any balance sheet as a liability, because this would require a tax notice. But that is exactly what we have delayed by one year each with this smart model.