Different corporate and legal forms are taxed differently in Germany. The same applies to private income, which is partly subject to the standard and partly to the so-called withholding tax rate. The control rate gradient occurring here, i.e. the differently high control rates, can be cleverly utilized. One of the classic examples here is the granting of loans between spouses and life partners.

Principle 1: What is a Tax Rate Gap?

A tax rate differential exists whenever different income or companies are burdened with different tax rates. Corresponding regulations abound in income tax law and apply to private individuals, corporations and foundations, among others. In addition to the specific type of income, in many cases the legal form and the field of activity of the respective company also play a decisive role.

When it comes to the clever use of a tax rate differential, two different tax rates must first be present. This is achieved, for example, by establishing a corporation (GmbH, Foundation, Cooperative Society). Then the goal is to shift income from the higher taxed sphere to the lower taxed sphere.

Companies such as Apple, Google and Co. also use corresponding models. Here, however, no “internal German”, but a cross-border tax rate difference is regularly exploited. Operating expenses in Germany are incurred through corresponding contracts, reduce the taxable profit here and are subject to lower taxation than operating revenue in the designated state.

2nd example of tax rate difference: spouse swing, rental company, foundation

Tax rate differentials can be used in countless ways in practice, but are often associated with legal hurdles. For example, the legislature has created two instruments with licensing and interest rate barriers to reduce the outflow of operating expenses into low-taxed areas.

However, such regulations are often not applied in a “small style”, i.e. for private individuals and medium-sized companies. Here, tax rate differences are comparatively easy to use, as the following three examples clearly show.

2.1. Example 1: The Spouse Swing

If a spouse or civil partner owns a rented property, he can sell it to the other spouse at the current market value. This creates the spouses in the first step new depreciation volume, since now the current and no longer the – often many years or decades ago – earlier purchase price is decisive.

At the same time, the seller-spouse can grant a so-called seller loan, i.e. lend the buyer-spouse the necessary capital for the purchase of the property. The corresponding interest rates, which quickly come close to the double-digit range in the absence of a mortgage, are subsequently