A division of operations begins when the factual and human connections are a prerequisite. In return, the division ends when an event is no longer considered to have been fulfilled. The tax consequences begin and end accordingly with the division of operations. In this post, read more about the start and end of a business split.

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.

1st start and end of operation split

A planned as well as unplanned division of operations begins at the time from which both conditions are identical. The classic case is that the factual connection with the transfer of use of the essential operating basis or with the fulfillment of the personnel connection by new distribution of voting rights or new shareholding constellations justifies the division of operations. At this time, the tax consequences also begin. [] 98]

The division ends, both intentionally and unintentionally,[99] with the same inverse criteria. From the time when the material or personal connection no longer exists independently of each other, the division of operations and its tax consequences end.[100] The material connection ends with the termination or expiry of the use of the last essential operating basis[101] or with the termination of the commercial activity by the operating company.[102] In addition, the material connection ends with the loss of the status of the transferred asset as essential operating basis for the operating company.[103]

The personal integration cannot be further fulfilled by various changes. E.g. by sale or merger of the shares and corresponding change in the shares or voting rights[104], donation[105], inheritance[106], coming of age of majority of a child with participating parents or insolvency[107]. According to the BFH judgment of 21.01.2015, there is also to be a termination of the division of operations if a sole proprietorship with the shares in the operating company in the operating assets is transferred under an anticipated succession, but with reservation of usufruct.[108] This opinion of the BFH is not supported by the literature, because the domination of the owner and operating company would continue to exist under reservation despite new owners and usuficiaries.[109]

The audit period for a given division of operations is to be carried out by the tax office every year, regardless of the previous year. It follows that a continuous change between existence and non-existence and the associated legal consequences is also permissible. A retroactive change is legally compliant until the expiry of the limitation periods. [110]

Due to the discontinuation of the business split and the associated termination of commercial activity on the part of the owning company, the tax-law legal consequence of an operating task acc. § 16 (3) EStG. [165] This is equivalent to a sale of business. From this point onwards, the activity of the former holding company is again qualified as asset management[166]. The entire operating assets of the company are transferred by a withdrawal into the private assets of the shareholders and the hidden reserves are revealed. [167]

The capital gain is determined in accordance with § 16 (2) EStG,[168] by attributing the partial value of the assets on withdrawal or the selling price on sale less the book values and the costs of disposal as taxable commercial income according to § 16 EStG to the shareholders of the holding company. [169]

These incomes are taxed in the context of the income tax assessment. However, if appropriate conditions are met, favourable provisions such as § 3 no. 40 b) EStG, § 16 (4), EStG or § 34 (3) EStG can be used:[170]

2.1 Partial income proceedings in accordance with § 3 no. 40 b EStG

This type of preferential taxation, which exempts 40% of the profit determined, applies to the part of the withdrawal/sale of the shares in the operating company that were previously in the operating assets in relation to the end of the division. According to § 3 no. 40 b EStG, this tax exemption is subject to the condition that the sale price within the meaning of § 16 EStG includes income from the sale of shares in a corporation that generated income according to § 20 (1) EStG at the recipient. [171] In return for the tax exemption, the deductible operating expenses are also to be reduced by 40% in the profit determination according to § 3c (2) EStG, so that 60% of operating expenses are deductible.[172] In the case of the classical division of operations, in which the operating company's shares are held in the holding company's assets, this tax deduction applies.[173]

2.2. allowance according to § 16 (4) EStG

The deduction of a one-time allowance of € 45,000 according to § 16 (4) EStG, which is reduced by the exceeding sale price of € 136,000, is to be granted to a taxpayer if he at the time of sale either the 55. has completed his or her life or is considered permanently incapacitated under social security law.[174]

2.3. favourable tariff treatment according to § 34 (3) EStG

Where the taxable income of a taxable person includes extraordinary income pursuant to paragraph 2, a preferential tariff arrangement may be applied upon request, in which the extraordinary income is taxed at 56% of the average tax rate, if the taxable person has either the 55. has reached the age of one year or is considered incapable of working under social security law.[175] According to § 34 (2) EStG, the capital gains under § 16 EStG are among the extraordinary income, with the special feature that included already partially tax-exempt profits through the partial income procedure according to § 3 no. 40 b] EStG is not included. [176]

2.4. Possibility of combination

In the case of a classic operating split, which was terminated, for example, by a sale of the shares in the operating company, a capital gain I and a capital gain II are to be determined on the part of the shareholder. The capital gain I is determined from the sale of the operating company’s shares and taxed at 60% by the partial income procedure. The allowance cannot be applied to the capital gain I, but only to the capital gain II, which relates to the termination of the holding company and the profit achieved, since the shares in the operating company were in the operating assets of the holding company and are therefore attributable to income under § 16 EStG and not § 17 EStG.

In this constellation, the preferential tariff treatment can additionally be applied to the capital gain I of § 16 EStG, since, unlike the capital gain II, there is no tax exemption under § 3 no. 40 b) EStG. According to the BFH jurisprudence from 2015, it is irrelevant for the tax consequences whether the ownership or operating company is first sold or abandoned.[178] There is no trade taxation of the end of the business split.[179]

Tax consultants to avoid the GmbH division of operations

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