It is possible to transfer assets without incurring inheritance or gift tax. This is ensured on the one hand by the allowances for inheritance and gift tax. However, tax arrangements are even more effective. Here we discuss a case that was judged by the Hamburg Tax Court to be rightly tax-free, although the limits of the allowances were clearly exceeded. But the judgment of the Hamburg judges on a KGaA as a vehicle for saving the gift tax must still take the Bundesfinanzhof (BFH) as the last hurdle.

1. Avoid gift tax with KGaA – Introduction

Who wants to transfer assets without taxes, has many options. For example, we recall the transfer of assets of EUR 1 billion by Friede Springer to Matthias Döpfner. But even without complicated design, there seems to be a way to transfer assets tax-free. We trace such a path in this article. At the center is a KGaA, with which a father could transfer a fortune of many millions of euros without gift tax to his son.

2. What is a KGaA?

But before we start a hymn of praise for avoiding the gift tax by means of a KGaA, we should explain briefly what a KGaA is. Here we refer to one of our articles in which we present the KGaA in detail. For our concerns here in this meeting, it is important that we point out the nature of the KGaA. We are particularly interested in the civil aspects of this legal form. How the general taxation or other details are regulated in relation to the KGaA, however, is secondary.

The KGaA, fully pronounced “common limited partnership on shares”, is a hybrid company. It combines the characteristics of a partnership with those of a corporation. This is basically a limited partnership with one or more general partners, i.e. persons who are fully liable with their private assets. As a KG, the KGaA also has limited partners. What is special about the KGaA, however, is that the limited partners are involved as shareholders in the company.

On the other hand, as a shareholder, you want to perform the management yourself. As a general partner of a limited liability company, this condition can easily be fulfilled. In addition, it also shows that you personally take responsibility as a general partner. This can also be an important incentive for those interested to invest in a KGaA.

3rd gift tax at KGaA: legal framework

Now let’s see what the specific situation looked like. A father and his son had initially founded a KGaA. The son had entered society as a complementary. The father, on the other hand, participated by paying the entire share capital (EUR 50,000) into the KGaA. His son also contributed a capital contribution of EUR 450,000. In addition, both had agreed in the articles of association that the shareholders were entitled to a share in the company’s profits and capital reserve, thus in the company’s assets, equal to their percentage share in the capital of KGaA. This results in a ratio in which the father is entitled to 10% and the son to 90% of the profit and reserves.

Now the father had a considerable fortune (a multi-figure million amount). After the founding, he also contributed this assets to the KGaA for promotion. The contribution was made to the account of an untied capital reserve. Such an operation in which a shareholder with less than 100 % of the shares in the company contributes an asset to the company without any change in the amount of his shareholding or any other consideration being paid is called a disproportionate contribution.

In any case, the disquotal contribution has often been the focus of jurisprudence in the past and thus also of legislation. In fact, according to current opinion, the disproportionate contribution by one shareholder to a partnership or corporation requires an enrichment of the other shareholders. And so it is usually subject to the gift tax.

FG Hamburg judges: no gift tax at KGaA

Let us now come to the judgment of the Hamburg Finance Court. It had to decide on three central questions: