The regulation of § 6b paragraph 10 EStG creates liquidity for companies in order to make new investments. This is made possible by the tax-neutral transfer of hidden reserves from the sale of shares in corporations or certain assets to a reserve. However, the formation of such a reserve is subject to certain conditions and restrictions. Because it depends on the type of economic goods on whose sale the profit is based.

On the one hand, the profit from the sale of real estate as well as agricultural goods or inland waterway vessels can only be used for the acquisition of the same. On the other hand, sole proprietors and partnerships may use profits from the sale of holdings in corporations for the purchase or manufacture of usable assets – including buildings – or the re-acquisition of holdings in corporations. However, there is a maximum amount of EUR 500,000. In addition, amounts in excess of these are subject to regular taxation.

As a result, individual entrepreneurs and partnerships are treated equally with corporations. And many entrepreneurs have long desired it for a long time.

With the introduction of § 6b EStG, one of the most important design and planning instruments for the operational sector was integrated into the EStG. The provision makes it possible, at least temporarily, to neutralise the profit from the sale of land by transferring hidden reserves or forming a reserve. As a significant innovation, the paragraph has been incorporated into paragraph 10 in its current version. Section 6b(10) of the EStG allows all taxpayers who are not corporations (partner companies) to transfer hidden reserves, which are discovered in the event of a sale of shares in corporations (GmbH, AG, etc.), to certain reinvestment goods. The taxpayer has the choice to transfer the hidden reserves immediately in the year of sale, or to form a tax-free reserve in order to dissolve them in the following years. In this way, an immediate taxation of the realized profit is avoided.

1.2. Objective of § 6b paragraph 10 EStG

The aim of § 6b paragraph 10 EStG is to increase the liquidity of partnerships for the implementation of investments. At the same time, a positive effect is achieved with regard to tax justice. Until the introduction of paragraph 10, partnerships could not sell their shares in corporations tax-free. They had to pay 60 % tax on their income from the sale of shares immediately under the partial income procedure. By contrast, corporations benefit from the dividend privilege, which exempts 95 % of the corresponding income from taxation. In this way, this provision eliminates a frequently criticised discrimination against individual entrepreneurs and partnerships over corporations.

2 Important requirements for the application of § 6b paragraph 10 EStG

2.1. Beneficiaries Taxpayers

Taxable persons within the meaning of paragraph 10 are only natural persons, whether limited or unlimited. Furthermore, taxable persons who are corporations, associations of persons or masses of assets are excluded from the benefit. For this purpose, paragraph 10 does not apply to the taxable persons mentioned in the KStG because their profits from the sale of shares in another company already remain tax-free under the corporate tax schemes. In addition, total assets of partnerships or communities are excluded insofar as they hold shares in these corporations.

2.2 Minimum membership of fixed assets – 6 years

A prerequisite for the transfer of hidden reserves pursuant to § 6b EStG is that the shares sold to corporations have belonged uninterruptedly to the fixed assets of a domestic permanent establishment for at least 6 years (6-year period) at the time of sale.

The taxable person may transfer the profit to the newly acquired shares in corporations in the marketing year of the sale or in the reinvestment period, to the acquisition and production costs (AHK) of usable movable assets or to the AHK of buildings. However, while in the transfer of profits to shares in corporations an amount can be transferred up to the amount of the total profit accrued on the sale, the profit of the assets to be transferred to buildings or usable movable assets is limited to 60% (note: each maximum EUR 500,000, see chapter “Amount of transferable profits”). Therefore, only the part of the capital gains taxable under the partial income procedure can be transferred to AHK. On the other hand, a transfer to land & soil or to growth to land & soil, as is possible under paragraph 1, shall be prohibited under paragraph 10.

2.3.1. Example

Individual entrepreneur E has held a stake in G-GmbH (AK EUR 100,000) for 7 years. For liquidity reasons, E sells this investment for EUR 500,000. The capital gain is to be transferred to a machine that wants to acquire E (AK EUR 700,000).

The capital gain is favoured according to § 6b paragraph 10 EStG. The amount of the rated part which can be charged against the AK of the machine is determined as follows:

EUR 500,000 – EUR 100,000 = EUR 400,000 capital gain

EUR 400,000 x 60% = EUR 240,000 transferable hidden reserves

The machine shall be activated as follows:

EUR 700,000 – EUR 240,000 = EUR 460,000

Thus, the machine is valued at EUR 460,000 in fixed assets and is therefore also considered BMG for future depreciation. The 40% of hidden reserves that may not be transferred remain tax-free due to the partial income procedure.

variation

The capital gain of sole proprietor E is now not to be transferred to a machine but to other KapG shares in which E wants to invest (AK again EUR 700,000).

The capital gain is favoured according to § 6b paragraph 10 EStG. The amount of the taxable part that can be offset against the AK of the new shares in a KapG is determined as follows:

EUR 500,000 – EUR 100,000 = EUR 400,000 capital gain

EUR 400,000 x 100% = EUR 400,000 transferable hidden reserves

The new participation in KapG is to be activated as follows:

EUR 700,000 – EUR 400,000 = EUR 300,000

Thus, the investment is only EUR 300,000 in fixed assets. Since 100 % of the hidden reserves were transferred, taxation ceased in the year of the sale of the shares in G-GmbH.

3rd amount of transferable profits

Furthermore, the profit made on the sale of shares in corporations can be deducted in full or in proportion, but limited in amount, from the acquisition costs of a beneficiary reinvestment good. For this purpose, the restriction is EUR 500,000 and applies to the transfer to all three beneficiary capital goods. Furthermore, the personal approach applies to § 6b EStG. Therefore, the amount of the benefit depends on the circumstances in the taxable person’s tax period. In the context of section taxation, the maximum amount of EUR 500,000 thus applies per taxpayer and assessment period.

Transfer possibilities of hidden reserves