A German GmbH can be converted into a foreign partnership. That this is classically done by cross-border merger, we have already shown in another article. Here we now show the change of form and the transfer of the GmbH shares to a partnership as an alternative. Here we refer to the example of the transformation into a British partnership, as the situation before Brexit (EU issues) and after Brexit (third-country issues) can be compared with each other.

1st change of form of a German corporation into an English partnership

A change of form within the meaning of §§ 190 ff. UmwG is not possible, since the shape change according to FIG. § 1 Abs. 1 UmwG is only possible if the legal entity has a registered office in Germany. [1] A cross-border change of legal form is not possible under German tax law, but the German regulation within Europe can be circumvented by the freedom of establishment under Article 49 TFEU. [2] Within the European Union there is thus the possibility of a change of form, taking into account high burdens. [3] However, this does not apply to third countries, so that the German regulations apply to Great Britain after leaving the European Union and a cross-border change of form is excluded. [] 4]

The German limited liability company can therefore only carry out a conversion into a British partnership in the context of individual succession by transferring a business or individual assets. [] 5]

The submission must be made if the requirements of § 24 para. 1 and para. 2 UmwStG tax neutral at book values possible. [6] The requirement of § 1 para 4 S. 1 No. 1 UmwStG that the assuming legal entity has the registered office and management in a Member State of the European Union or a country of the European Economic Area no longer meets Great Britain as a third country. [7] For the transfer to a partnership according to § 24 UmwStG, this requirement acc. § 1 Abs. 4 S. 2 UmwStG not. [] 8]

A submission is in accordance with § 24 para. 1 UmwSt possible if, in addition to the holding or part of the holding, the contributing entrepreneur becomes a co-entrepreneur. The condition of the co-entrepreneur presupposes that the English partnership can be regarded as a co-entrepreneurship in accordance with the German legal principles. [9] This requirement is basically in an English partnership acc. Table 1 of the letter of the Federal Ministry of Finance, since this is equivalent to the German Open Commercial Company. [] 10]

2.1 Tax neutral contribution to book values

For a tax-neutral contribution to book values, the requirements of § 24 para. 2 S. 2 UmwStG. For this, according to § 24 Abs. 2 no. 1 UmwStG the taxation right of the Federal Republic of Germany with regard to the transferred operating assets is not excluded or restricted. In addition, according to § 24 Abs. 2 no other consideration is granted to the transferring entrepreneur, in addition to the new shares, if these amounts to more than 25 percent of the book value of the transferred business assets, § 24 (2) number 2 letter a UmwStG, or 500,000 euros, but at most the book value of the transferred business assets, § 24 (2) number 2 letter b UmwStG. The right of the Federal Republic of Germany to tax the transferred assets shall not be lost and shall not be restricted if the transferred assets form a domestic permanent establishment even after the transfer or if the assets belong to a domestic permanent establishment. [] 11]

2.2 Legal definition of personnel function

It must be observed and checked that the personnel function of the transferred assets is actually also exercised in the German establishment, the pure belonging to the total hand assets is not sufficient.[12] The business activity carried out by the own personnel for the company is the legal definition of the personnel function within the meaning of § 2 Abs. 3 of the Establishment Profit Distribution Ordinance (BsGaV). If, on the other hand, the personnel function is transferred to the British partnership, the assets concerned are to be discovered and taxed at common value, and a subsequent relocation of the personnel function also leads to the discovery of the hidden reserves. [] 13]

If the German corporation transfers individual assets to the British partnership, a tax-neutral transfer to book values according to § 24 UmwStG is not possible, since § 24 para. 1 S. 2 UmwStG requires the submission of an establishment or part-operation.

For the transfer of individual assets, the valuation provisions of § 6 para. 5 p. 3 no. 1 EStG, so that the transfer to book values is possible and a tax-neutral restructuring is possible. [14] For this, according to § 6 Abs. 1 EStG, however, the taxation of the hidden reserves can be ensured. However, by being transferred to a British partnership, taxation is transferred to the British company and the exemption method of the species. 23 para 1(a) DTA with Great Britain in the V. m. Article 7 para. 1 and para. 2 DBA with Great Britain. [] 15)

The tax-neutral transfer within the meaning of § 6 Abs. 3 No. 1 EStG is therefore only possible for assets whose personnel function remains in a domestic permanent establishment even after transfer to a British partnership. [] 16]

If the transfer has been made tax-neutral, in particular § 6 para. 5 sentence 5 and sentence 6 EStG. § 6 Abs. 5 S. 3 EStG is not applicable according to sentence 5 if the share of a corporation, association of persons or assets in the economic good is created directly or indirectly or increases. If the transfer takes place via this constellation of the concealed deposit, the partial value shall be used. [17] The same applies according to § 6 Abs. 5 sentence 6 EStG also, if the same scenario occurs within seven years, in which case the partial value shall be applied retroactively at the time of transfer. [18] This is a retroactive event within the meaning of § 175 Abs. 1 No. 2 Tax Code, whereby repayment interest acc. § 233a AO can arise. [] 19]

2.3 Land transfer

If a property is transferred to the British partnership pursuant to § 24 UmwStG or as an individual economic good pursuant to § 6 para. 5 EStG, real estate transfer tax may apply. [20] This is in accordance with § 5 Abs. 2 of the Property Transfer Tax Act, insofar as the transferring German corporation is involved in the assets of the British partnership. This necessitates a transfer of the property into the total hand-holding of British society.[21] Through the equality of a British partnership to the level of an open commercial company by the Federal Ministry of Finance[22] can be assumed regularly. [23] The real estate transfer tax is therefore waived if the transferring German limited liability company has an equity interest in the British partnership. [] 24]