para. | paragraph
AG | Aktiengesellschaft
AktG | Aktiengesetz
AO | Tax Code
Art. | Article
Beck Bil-Komm. | Beck's balance sheet commentary
BeckHdB | Beck's Handbook
BeckOGK | beck-online.
Founder
BFH | Bundesfinanzhof
BGB | Civil Code
BGH | Bundesgerichtshof
DNotZ | German notary magazine
DStR | Magazine German Tax Law
DStRE | Magazine German Tax Law – Decision Service
ff. | following
FG | Finance Court
GewStG | Business Tax Act
GmbH | Company with limited liability
GmbHG | Law concerning limited liability companies
HGB | Commercial Code
Edited | Editor
i.d.R. | usually
i.S.d. | in the sense of
i.V.m. | in conjunction with
KGaA | limited partnership on shares
GroupStR | Group tax law
KStG | Corporate Tax Act
lit. | letter
MAH GmbHR | Municher Anwaltshandbuch GmbH-Recht
MAH PersGesR | Munich Lawyer's Handbook of Partnership Law
MHdB GesR | Munich Handbook of Company Law
MüKoAktG | Munich Commentary on the Share Act
MüKoHGB | Munich Commentary on the Commercial Code
NJW | New Legal Weekly
No | Number
NZG | Neue Zeitschrift für Gesellschaftrecht
Higher Regional Court
RegisterR | Registration right
paragraph | recital
RNotZ | Rheinische Notarzeitschrift
S. | sentence
s.o. | see above
SE | European Company, Societas Europaea
Tz | sub-digit/text number
Corporate Tax Law
Judgment | Judgment
v. | from
Arens, Tobias | Obligation to register in the event of changes to the other part of the contract of control and profit transfer agreements?, NZG 2021, 223
Boor, Julian | Profit transfer and domination contracts in notarial practice, RNotZ 2017, 65
Regr.
Boujong, Karlheinz/
Ebenroth, Thomas/
Joost, Detlev
Ed.
Joost, Detlev/
Strohn, Lutz | Ebenroth/Boujong/Joost/Strohn Commercial Code, 4. 2020 edition, Munich
(quote: EBJS/Employee, HGB, § Rn.)
Regr.
Budde, Wolfgang Dieter
Clemm, Hermann/
Pankow, Max/
Sarx, Manfred
Ed.
Grottel, Bernd/
Justenhoven, Petra/
Schubert, Wolfgang J./
Störk, Ulrich | Beck’s balance sheet commentary, 12. 2020 edition, Munich
(quote: Beck Bil-Komm./Bearbeiter, HGB, § Rn.)
Deilmann, Barbara | Termination of the domination and/or profit transfer agreement in the M&A transaction, NZG 2015, 460
Ed.
Drescher, Ingo/
Fleischer, Holger/
Schmidt, Karsten | Munich commentary on the HGB, 4. 2020 edition, Munich
(quote: MüKoHGB/Bearbeiter, HGB, § Rn.)
Ed.
Drinhausen, Florian/
Eckstein, Hans-Martin | Beck’s Handbook of the AG, 3rd edition 2018, Munich
(quote: BeckHdB AG/Employee, § n.)
Ed.
Emmerich, Volker/
Habersack, Mathias/
Schürnbrand, Jan | Emmerich/Habersack Aktien- und GmbH Group Law, 9th edition 2019, Munich
(quote: Emmerich/Habersack/Bearbeiter, AktG, § Rn.)
Ed.
Goette, Wulf/
Habersack, Mathias | Munich Commentary on the Stock Corporation Act, 5th edition 2020, Munich
(cited: MüKoAktG/Employee, AktG, § Rn.)
Ed.
Gosch, Dietmar | Gosch Corporate Tax Act, 4. 2020 edition, Munich
(quote: Gosch KStG/Employee, KStG, § paragraph)
Grewer, Christoph | Retroactive effect of profit and loss transfer agreements, DStR 1997, 745
Ed.
Grigoleit, Hans Christoph | Grigoleit Aktiengesetz, 2nd edition 2020, Munich
(quote: Grigoleit/Bearbeiter, AktG, § Rn.)
Ed.
Gummert, Hans | Munich Lawyer's Handbook of Personnel Law, 3rd edition 2019, Munich
(quote: MAH PersGesR/Employee, § paragraph)
Total Ed.
Henssler, Martin | Beck-online.GROSSKOMMENTAR for commercial and company law, as of 01.02.2022, Munich
(quoted: BeckOGK/Bearbeiter, AktG, § Rn.)
Ed.
Heuermann, Bernd
Brandis, Peter | Brandis/Heuermann Income Tax Law, 160. Coverage
2021, Munich
(quote: Brandis/Heuermann/Bearbeiter, § paragraph)
Ed.
Hoffmann-Becking, Michael | Munich Handbook of Corporate Law, 5th edition 2020, Munich
(quote: MHdB GesR IV/Employee, § paragraph)
Ed.
Hölters, Wolfgang /
Weber, Markus | Hölters/Weber Aktiengesetz, 4. 2022 edition, Munich
(cited: Hölters/Weber Aktiengesetz/Bearbeiter, AktG, § Rn.)
Regr.
Hüffer, Uwe | Koch Aktiengesetz, 16. 2022 edition, Munich
(quote: Koch Aktiengesetz/Bearbeiter, AktG, § Rn.)
Kaeser, Christian | The profit transfer agreement as a formal hurdle for the organization, DStR 30 2010, 56
Regr.
Keidel, Theodor/
Schmatz, Hans | Krafka Registerrecht, 11. Edition 2019, Munich
(referred to as Krafka RegisterR/Employee, paragraph)
Ed.
Kessler, Wolfgang /
Kröner, Michael/
Köhler, Stefan | Kessler/Kröner/Köhler Group Tax Law, 3rd edition 2018, Munich
(quote: Kessler/Kröner/Köhler KonzernStR/Verarbeiter, § paragraph)
Ed.
Lüdicke, Jochen /
Sistermann, Christian | Lüdicke/Sistermann Corporate Tax Law, 2nd edition 2018, Munich
(quote: Lüdicke/Sistermann UnternehmensStR/Bearbeiter, §)
paragraphs
Marx, Marius
Scheifele, Matthias | The time requirements for the profit and loss transfer agreement and its implementation, DStR 2014, 1793
Olbing, Klaus | Trouble without end: BFH adopts position on the minimum duration of profit and loss transfer agreements, NZG 2011, 773
Ed.
Prince, Ulrich
Winkeljohann, Norbert | Beck's Handbook of the GmbH, 6. Edition 2021, Munich
(cited: BeckHdB GmbH/Employee, § n.)
Ed.
Reichert, Jochem | Reichert GmbH & Co. KG, 8. Edition 2021, Munich
(cited: Reichert GmbH & Co. KG/Employee, § Rn.)
Ed.
Römermann, Volker | Münchener Anwaltshandbuch GmbH-Recht, 4. 2018 edition, Munich
(cited: MAH GmbHR/Employee, § Rn.)
Regr.
Roth, Günter H.
Ed.
Altmeppen, Holger | Altmeppen GmbHG, 10. Edition 2021, Munich
(cited: Altmeppen GmbHG/Employee, annexed to § n.)
Schell, Matthias/
Schrade, Jörg | Reinvestment agreements and actual implementation of profit transfer agreements iSd
§ 14 Abs. 1 S. 1 Nr. 3 S. 1 KStG, DStR 2017, 86
Schöning, Pascal/
Steininger, Andreas | Approval rate for domination and profit and loss transfer agreements of a GmbH as group subsidiary, NZG 2022, 253
Ed.
Schüppen, Matthias/
Schaub, Bernhard | Munich Lawyer's Handbook of Share Law, 3rd edition 2018, Munich
(quote: MAH AktR/Employee, § Rn.)
Schwan, Tobias | Tax Aspects of the Under-Year Termination of an Income Tax Organization as Part of a Corporate Purchase, DStR 2020, 575
Ed.
Spindler, Gerald/
Stilz, Eberhard | Spindler/Stilz Aktiengesetz, 4. Edition 2019, Munich
(quote: Spindler/Stilz/Bearbeiter, AktG, § Rn.)
An organization is an association of several companies that are linked by participation relationships and mutually oblige each other. Thus, a limited liability company, as an organ company, is contractually obliged to pay its profits to the holding company, the organ carrier. Conversely, the institution shall undertake to compensate for any losses at the level of the institution. During this contractual relationship, the two companies are treated as one company in terms of taxation. The basis for this is the civil profit transfer agreement between the companies. Other tax requirements for the profit and loss transfer agreement include the minimum period over which the entity must last, namely five years, and the effective implementation of the contract, in order to anticipate only some of the details that will be discussed in detail in this contribution.
The Institute of Tax Organization is an essential part of German corporate tax law. [1] Only through the income tax organization can a transparent taxation of structured group companies be made possible. [2] The establishment of an organisation leads to the fact that, for income tax purposes, several companies that are independent under civil law are treated as one tax entity under corporate tax and business tax. [3] Corporate tax is the income of the corporate company in accordance with §14 Abs. 1 KStG attributable to the organ carrier. [4] In addition to the tax design objective of establishing an organisational relationship and the resulting possibility of offsetting profits and losses within the affiliated companies, economic design objectives can also be used to improve the competitiveness and profitability of individual companies. [5] A corporate tax organization presupposes, among other things, that the corporate organization is established by a profit transfer agreement within the meaning of § 291 para. 1 AktG is obliged to pay its entire profit to a domestic, commercial company – organ carrier – in accordance with § 14 para. 1 sentence 1 KStG.[6] Due to the explicit requirement of the basic norm of the tax organization to oblige the organization company to pay the entire profit by a profit transfer agreement within the meaning of § 291 para. 1 AktG highlights the special significance of the Treaty. The civil law form and other requirements for company contracts or profit transfer agreements must be compellingly observed, because civil law validity is indispensable for the tax recognition of the profit transfer agreement. [7] Thus, civil law effectiveness, which serves the tax substantive effectiveness, has developed into a popular field of auditing. [8]
The objective of the present scientific debate on the topic “Tax requirements for the profit and loss transfer agreement” is to present and delineate the most important requirements for a tax-effective profit and loss transfer agreement in practice, with reference to the relevant civil and company law validity requirements.
In the first section of the dispute, the definition of the company contract in the sense of §§ 291 ff. AktG and the classification of the company under company law of the profit and loss transfer agreement in the German legal system.
The second section deals with the civil requirements for an effective profit or loss contract, differentiated according to the requirements of the parties involved, the formal requirement, the treatment of other formal requirements in order to obtain validity in the domestic and external relationship, as well as the most important content of the contract in practice.
The third section differentiates, taking into account the current disputes, the tax requirements for an effective profit transfer agreement according to the specific tax requirements for the parties involved, the determination of the profit to be transferred with the obligation to assume losses and the treatment of the term of the contract with the requirement of the effective execution of the contract.
Company contracts under company law constitute a possibility of merging independent companies. [9] The legislator provides in §§ 291 and 292 AktG a final catalogue of company contracts in the sense of company law. The Numerus Clausus serves, through the legal consequences linked to the conclusions, the protection of the outside shareholders, the so-called minority shareholders, and the creditors of the obligated company. [11] The compelling legal consequences are due to the fact that obligated companies regularly align their corporate purpose with the interests of the group, partially or completely giving up economic independence. [] 12]
§§ 291 and 292 AktG specifies which types of contracts the law on shares means under the term “company contract”. [13] The term “corporate contract” is to be understood as a generic term and serves the legal technique, which initially systematically defines general provisions in §§ 293 – 299 AktG, which are followed by special provisions for certain company contracts. [] 14]
Corporate contract law is defined in § 291 AktG and regulates in particular the domination and profit transfer agreement. As so-called other company contracts defined § 292 Abs. 2 AktG the business transfer agreement, partial profit transfer agreement and the profit association.[16] The other corporate contracts are of a debt-law nature,[17] with an exchange of performance and consideration, the legal consequences of which are not subject to the narrow regulations on the protection of creditors and minorities according to §§ 302 – 307 AktG. [18] The distinction between these company contracts and the control and profit transfer agreements is not governed by the designation of the contract, but rather by the content of the entirety of its provisions. [19] Delimitation criteria are, in particular, the transfer of all profits, whether the incorporated company is directly bound by the ruling company in such a way that the purpose of the company is directly affected. [] 20]
The profit transfer agreement governed by shareholder law constitutes direct company law relationships between the parties involved and has constitutionally amending effects for the duration of its existence.[21] The legal character of profit transfer agreements results from the modification of the constitution of the obligated company to the effect that profit is no longer achieved in the interest of the obligated company, but in the interest of the ruling company.[22] Furthermore, according to § 308 AktG, the executive authority of the shareholders' meeting is transferred to the ruling company. With the transfer of the entire profit, the profit claims of outside shareholders are also eliminated. [23] Due to the modification of the company law constitution of the obligated company and the associated restriction of the outside shareholders in the assets and income of the company, the stock company law provides for regulations to protect the creditors of the obligated company according to §§ 300 – 303 AktG[24] and compensation and severance claims according to §§ 304 – 305 AktG[25], which supersede the constitutional provisions. In addition, the shareholders of the obligated company are excluded from the decision on the use of the profit on the balance sheet. [] 26]
Profit transfer agreements also include legal obligations, so both contracting parties have to fulfill legal obligations.[27] Typical obligations are in particular the obligation to assume losses on the part of the ruling company and the alignment of the purpose of the company with the interests of the group. [] 28]
The profit transfer agreement within the meaning of § 291 para. 1 sentence 1 alt. 2 AktG is defined as a company law contract whereby an AG, KGaA or SE undertakes to transfer all its commercial profits to another company. Directly linked to the transfer of profits to the Qualifying Company is its obligation to offset losses during the term of the contract.[30] Since the Qualifying Entity is also obliged to assume losses, the profit and loss transfer agreement is also correctly referred to as the profit or loss transfer agreement. [] 31]
The civil requirements for concluding a profit or loss transfer agreement are set out below. A distinction is made between conditions for the material effectiveness of the profit or loss transfer agreement and those relating to its formal form.
The civil requirements for the contracting parties involved in a profit or loss agreement are dealt with below.
The law on shares imposes clear requirements on the legal form of the obligated company, the so-called sub-company.[32] The sub-company must be an AG, KGaA or SE governed by German law and domiciled in Germany.[33] If the profit or loss transfer agreement is concluded with an SE as an obligated company, a distinction must be made as to whether it is an SE with a separate management and supervisory body or with a monistic structure. [34] In the case of an SE with a dualistic structure, the efficacy requirements are linked to the provisions of public limited liability law.[35] In the latter case, the provisions of public limited liability law are not readily applicable, since the Board of Directors has tasks of a management and supervisory body. If there is no provision deviating from the tasks of the Board of Directors with regard to the conclusion of a profit and loss transfer agreement, §§ 293 ff. AktG as for the dualistic SE.[36] Although the scope of §§ 291 ff. AktG extends directly only to profit or loss transfer agreements with legal forms of a stock company nature, an effective conclusion with other than the aforementioned legal forms is not excluded. The GmbHG does not contain any provisions on the conditions of a profit or loss transfer agreement of an obligated GmbH.[38] It is questionable whether the law of company contracts according to §§ 291 ff. AktG is also applicable for the legal form of the GmbH. According to the case law of the BGH, the provisions of §§ 291 ff. AktG applies partially analogously to the profit transfer agreements concluded by a controlled GmbH, insofar as differences in the legal form do not conflict with this.[39]
The term "other company" within the meaning of § 291 para. 1 AktG is legal form neutral.[40] Thus, the legal form and the registered office of the parent company are insignificant compared to the sub-company. Consequently, any legal entity within the meaning of § 15 AktG with registered office in Germany and abroad comes into consideration.[41] Legal entities according to § 15 AktG can be, for example, individual merchants, commercial partnerships, foundations, associations and legal entities. 42]
The profit and loss transfer agreement requires the written form across legal forms.[43] It must therefore be signed by the representative bodies of both parties. Stricter requirements for the form are only necessary if the contract contains provisions that are formally necessary under other regulations. [44] In the case of a profit or loss transfer agreement which is only drawn up in writing, there is regularly a pending ineffective contract which, in order to be valid in the internal and external relationship, must fulfill further requirements, depending on the legal forms of the parties involved.
If an AG, KGaA or SE is a dependent company, according to § 293 para. 1 AktG approve the Annual General Meeting with a majority of at least three quarters of the share capital represented of the resolution on the profit and loss transfer agreement.[45] The approval decision is in accordance with § 130 Abs. 1 sentence 1, sentence 3 AktG must always be notarized. [] 46]
If the sub-company is a GmbH, the shareholders' meeting decides on the approval.[47] The BGH does not derive the consent requirement from § 293 para. 1 AktG, but refers to the materially constitutionally changing character of the profit and loss transfer agreement, which requires an analogous application of §§ 53 and 54 GmbHG. It is controversial in the literature and left open by the BGH whether the approval decision, in the case of an obligated GmbH, can only be taken with the consent of all shareholders or whether the statutory amending three-quarters majority is sufficient. [48] The first predominantly held view is that the BGH sees the conclusion of a profit and loss transfer agreement as a change in the purpose of the company and thus complies with the provisions on unanimity in the event of an amendment to the articles of association within the meaning of § 33 para. 1 sentence 2 BGB.[49] The counter-conception refers to the fact that § 293 Abs. 1 sentence 2 AktG and the conversion law for structurally changing shareholder resolutions require only a three-quarter majority. The protection of minority shareholders is guaranteed by the transfer of the shareholder protection provisions and compensation provisions according to §§ 304 and 305 AktG. [50] In order not to jeopardise the effectiveness of the profit and loss transfer agreement, it is preferable to require unanimous decision-making. As a further formal requirement, the BGH provides for the notarized certification of the approval decision. 51]
If the other company is an AG, KGaA or SE, § 293 para. 1 sentence 2 to 4 AktG accordingly.[52] Consequently, a majority is required which comprises at least three-quarters of the share capital represented in the resolution.[53] The purpose of the consent requirement of the ruling company according to § 293 para. 2 AktG it is, among other things, the shareholders, against the background of § 305 para. 2 AktG resulting compensation obligation of outside shareholders in the form of shares of the controlling company to grant a right of participation. Another circumstance that takes into account the approval requirement is the obligation to assume losses during the duration of the contract. [] 55
If the contractual partner is a GmbH, an effective approval decision must be taken by a three-quarter majority of the share capital represented. [56] Since the BGH does not require the consent of the ruling GmbH to §§ 53 and 54 GmbHG, but to the analogous application of § 293 para. 2 AktG and one to § 130 Abs. 1 sentence 1 AktG corresponding provision in GmbH law does not exist, the written drafting of the approval decision is sufficient. [] 57]
If the controlling company is a partnership, it is questionable which majority needs the approval decision. [58] When a profit or loss transfer agreement is concluded by a controlling partnership, there is usually no fundamental business, since this does not affect the social contractual relationship of the shareholders to each other. [59] However, the associated obligation to assume losses constitutes an exceptional management measure, which according to § 116 para. 2 HGB requires a unanimous decision. [] 60]
According to § 294 para. 2 AktG, the profit and loss transfer agreement in the external relationship, which is already valid in the internal relationship after the approval decision has been taken, only becomes effective once its existence has been entered in the commercial register of the registered office of the dependent company. [61] § 294 Abs. According to the BGH, 2 AktG also applies analogously to profit and loss transfer agreements with a GmbH as a dependent company. [62] Entry into the commercial register thus has a constitutive effect.[63] A withdrawal from the contract is possible until the time of registration. The management body of the obligated company has the existence of registering the type of company contract and the name of the other contracting party in the commercial register. [64] Registration is only the existence of the profit and loss transfer agreement, not its concrete content.[65] The notification shall be accompanied by the results transfer agreement and the two decisions approving it. [] 66
Compared to the other part of the contract, however, there is no obligation to register the profit transfer agreement in the commercial register at the headquarters of the controlling company. [] 67
In practice, the tax requirements are regularly decisive for determining the start of the contract and the duration of the contract of a profit or loss transfer agreement, in particular § 14 para. 1 sentence 1 no. 3 sentence 1 KStG is significant for the minimum duration of the contract. On the basis of the tax requirements, it is appropriate to achieve a synchronisation between the start of the contract and the start of the marketing year of the registration of the contract in the commercial register at the registered office of the dependent company. [68] Agreements according to which the commencement of the contract should already be prior to the commencement of the marketing year in which the commercial register entry of the profit and loss transfer contract takes place are taxable in accordance with § 14 para. 1 sentence 2 KStG insignificant and are contrary to the tax effectiveness.[69] Under civil law, a retroactive effect on an already expired financial year is possible as long as the annual accounts have not yet been established. [] 70
In view of the fact that administrative and asset rights of external shareholders of the dependent company are largely ineffective as a result of the intervention rights of the ruling company and that the provisions on the statutory reserve within the meaning of § 300 AktG and the obligation to assume losses pursuant to § 302 AktG do not provide sufficient security in this respect, §§ 304 and 305 AktG grant minority protection in the form of compensation and severance compensation claims.[71] If external shareholders exist, the civil law validity depends on the fact that a compensation claim according to § 304 AktG is agreed. [72] According to § 304 Abs. 3 sentence 1 AktG, the contract is null and void if a corresponding provision is missing.[73] According to § 304 para. 1 sentence 1 AktG, the profit and loss transfer agreement must provide adequate compensation for outside shareholders by a recurring cash payment.[74] According to § 302 para. 2 AktG, the amount of the recurring cash payment may consist of both a fixed component related to the share capital and a variable component based on the company’s profit on the balance sheet. [75] An agreed payment above the minimum compensation is legally effective.[76] For the purposes of tax recognition, the total compensation must not exceed the share of profit corresponding to the share of the capital of the outside partner. [77] In addition, a profit or loss transfer agreement must contain an obligation, at the request of the outside shareholder, to acquire its shares against an appropriate severance payment. [78] If the controlling company is an AG, KGaA or SE, the severance payment can be made by granting own shares, if necessary by granting shares of the parent company or as cash severance payment in accordance with § 305 para. 2 No. 1 and 2 AktG.[79] However, the absence of a provision on the claim for severance pay does not lead to the nullity of the contract according to § 305 para. 5 sentence 2 AktG, instead, the court determined in accordance with § 2 of the Court Proceedings Act shall determine upon request the severance pay to be granted by contract. [80] Whether a compensation and severance payment obligation also exists for the benefit of outside shareholders of a dependent GmbH is controversial. [81] The representatives of the predominant opinion consider that, due to the unanimity requirement for the approval decision on the profit and loss transfer agreement, a compensation and severance payment obligation is unnecessary, since this allows the shareholders themselves to influence the design of the profit and loss transfer agreement and thus to enforce a compensation agreement in a privately autonomous manner. [82] The other view would like to ensure the protection of minorities by analogous application of §§ 304 and 305 AktG. [83]
Termination of the profit or loss transfer agreement may be effected by termination or cancellation. [84] The law provides for an ordinary termination of profit or loss transfer agreements only at the end of the financial year or the otherwise contractually determined billing period.[85] If there is no provision for the notice period, a period of six months is to be assumed according to § 132 sentence 1 HGB,[86] whereby the ordinary termination becomes an inflexible instrument. Without notice, § 297 Abs. 1 AktG to terminate for an important reason under strict conditions.[87] The term "important reason" is an indeterminate legal concept, which is not to be understood solely in the civil-law sense, but rather to prevent influences on results. [88] In practice, the question of termination for an important reason arises in particular when shares in the subsidiary are to be sold to a third party. [89] Contrary to tax law, civil courts do not partially recognise the sale of shares in the obligated company as an extraordinary termination within the meaning of § 297 AktG.[90] Consequently, it is advisable to define a provision for the loss of majority interest in the dependent company as an important reason for termination. As an exemplary case for an extraordinary termination mentions § 297 Abs. 1 sentence 2 AktG that the dominant company is unlikely to be able to fulfil its obligations under the contract. [91] Consequently, the rules on important grounds for termination should also include the repeated issuance of undue instructions by the controlling undertaking, the undue non-compliance of instructions by the subsidiary undertaking, the dissolution of a Party and conversion operations in the profit or loss transfer agreement. With regard to the tax-related follow-up questions regarding the termination of the profit and loss transfer agreement, reference is made to the subsection – term. Instead of termination, termination can be effected by cancellation. Just like the termination, a retroactive cancellation of the profit transfer agreement in accordance with § 296 Abs. 1 AktG inadmissible. [92]
The starting point is a civilly effective profit transfer agreement. Its civil validity is indispensable for the tax recognition of the profit and loss transfer agreement. [93] For example, a null contract cannot constitute an income-tax body. [94] In the following, the dispute concerns the requirements for the tax effectiveness of the profit or loss transfer agreement. This requires a minimum contract duration according to § 14 Abs. 1 sentence 1 no. 3 sentence 1 KStG of five years and the contractual implementation during the entire duration.[95] The legally required execution of the contract requires, in particular, that in addition to the transfer of the entire profit, losses of the organ company are also compensated[96] and the losses referred to in § 14 para. 1 no. 4 KStG, restrictions on the formation of retained earnings. [97] If the organ company is a GmbH, according to § 17 Abs. 1 sentence 2 KStG the profit transfer does not exceed the amount specified in § 301 AktG. [98] Furthermore, a loss assumption must be agreed by reference to § 302 AktG in its respective valid version. [] 99
For the tax recognition of the profit and loss transfer agreement, the parties involved must continue to meet the following requirements.
The organ carrier must comply with the requirements of § 291 para. 1 AktG a commercial enterprise taxable in Germany according to § 14 para. 1 KStG.[100] The company of the institution may have any legal form.[101] The organ carrier must have its management in Germany, a registered office in an EU member state is harmless.[102] The organ company also applies that a management in Germany meets the tax requirements. [103]
The special tax provisions that have to be observed with regard to the profit and loss transfer agreement include the requirement of transferring the entire profit in accordance with § 14 para. 1 KStG. The legislator has the concept of "whole profit" in the sense of § 291 para. 1 sentence 1 alt. 2 AktG not legally defined.[104] According to the will of the legislature, this means the balance sheet profit, because when a profit transfer agreement is in place, no profit is recorded in the commercial balance of the obligated company.[105] This has to determine the profit to be transferred in a pre-balance sheet according to commercial accounting rules.[106] Consequently, no profit is recorded in the liabilities of the obligated company in the final balance sheet and the profit to be transferred is passivated on the liabilities side of the balance sheet as a liability to affiliated companies.[107] In the income statement, this amount is correspondingly recorded as an expense in a separate item.[108] In the event of an annual deficit in the commercial law pre-balance sheet, the claim under § 302 AktG for loss assumption is recognised as a claim against affiliated companies.[109]
§§ 300 and 301 AktG are decisive for determining the amount of the profit to be transferred in the pre-balance sheet, unless the profit transfer agreement stipulates anything further.[110] Transferable profit is the amount reduced by a loss carry-forward from the previous year that would arise on balance sheet without the profit and loss transfer agreement.[111] Furthermore, the amount to be set is to be deducted into the statutory reserve within the meaning of § 300 No. 1 AktG.[112] In the determination, according to § 301 sentence 1 AktG, the restriction of the profit transfer with regard to the profit transfer pursuant to § 268 para. 8 HGB distribution-locked amounts must be observed.[113] Pre-contractually formed free reserves of the organ company, as well as pre-contractually formed profit carry forwards must be distributed to the shareholders of the latter when dissolved. [114] The formation of free reserves of so-called "other profit reserves" of the organ company is in accordance with § 14 para. 1 sentence 1 no. 4 KStG in the manner that amounts from the annual profit are to be entered in the retained earnings only to the extent that this is economically justified in a reasonable commercial assessment. [115] Statutory capital reserves within the meaning of § 272 para. 2 No. 4 HGB, which are formed during the organization, do not fall under the term "other retained earnings" and are therefore subject to § 14 para. 1 sentence 1 KStG not to be added to the profit to be transferred, but only distributed as profit.[116] The consequence of this is that capital reserves created during the organization must not be used to compensate for an annual deficit.[117] Therefore, it should be examined whether co-payments into the organization should not be made in profit or loss in order to place them in the retained earnings.[118] This leaves open the option to use the amount later to offset losses. [119]
According to § 302 Abs. 1 AktG, the organ carrier has to compensate annual deficits of the organ company during the duration of the contract, insofar as this is not compensated by taking amounts from the other retained earnings. [120] The standard applies directly without explicit contractual reference in the group governed by public companies.[121] According to § 17 sentence 2 no. 2 KStG, a loss assumption must be agreed in the GmbH Group in accordance with § 302 AktG and thus be part of the profit and loss transfer agreement.[122] Due to the express legal requirement, a dynamic reference to the provisions of § 302 AktG in its respective valid version must be agreed accordingly.[123] This applies to all regulatory elements of § 302 AktG and also to those that were not yet in force at the time of conclusion of the profit and loss transfer agreement.[124] Against this background, profit or loss transfer agreements must necessarily avoid inaccurate formulations of loss assumption in the cases of § 17 KStG, since a null and void profit or loss transfer agreement makes the tax organization fail, even if all participants assume an error-free contract and execute it accordingly.[125]
One of the tax requirements is that the profit and loss transfer agreement is concluded for at least five years and actually carried out during this period according to § 14 para. 1 no. 3 sentence 1 KStG.[126] Thus, in terms of time, the law imposes a formal requirement on the content of the contract and a material requirement on its implementation. The background to this regulation is to prevent arbitrary influences on tax payments.[127]
According to the administrative opinion confirmed by the BFH, the law understands in § 14 para. 1 sentence 1 KStG under the term "five years" five years, i.e. a period of 60 months, whereby it is harmless whether the five years also coincide with five marketing years.[128] The profit or loss transfer agreement meets the term requirements regardless of whether a contract is concluded for a period of at least five years or a contract concluded for an indefinite period, which may be terminated at the earliest for a period of five years.[129] The duration of the contract must be precisely regulated, since defective term clauses are regularly at the expense of the taxpayer and no cure for past marketing years is possible due to the tax retroactive effect ban. [130]
The five-year period begins at the earliest with the beginning of the financial year in which the profit transfer agreement becomes effective under civil law through the commercial register registration.[131] It is possible under civil law and tax law to agree on the commencement of the profit transfer agreement to the commencement of the marketing year of registration.[132] The financial administration assumes that the start of the five-year period requires that all other organizing requirements be met.[133] The BFH does not follow the administrative opinion and strictly focuses on the civil validity of the profit transfer agreement at the beginning.[134] In practice, a date-fixed start of the term should be avoided, here there is the risk that the registration is delayed and the profit transfer agreement only becomes effective in the following marketing year.[135] Consequently, the contract is not concluded for five years and is not effective for tax purposes.[136] There are no doubts about a contract concluded conditionally.[137] This arrangement meets the need to use up tax loss carry forwards before the start of the organization. [138]
The under-year termination of temporary income transfer agreements can be problematic, since the under-year termination can be extended to the beginning of the marketing year in accordance with § 14 para. 1 no. 3 sentence 3 KStG and the organization retroactively ceases for all marketing years if this is not actually carried out for the duration of five years.[139] In such cases, it is appropriate to agree in advance on an automatic extension of the duration until the end of the marketing year. [140]
It is questionable whether there is an effective term clause if the contract provides for deviating “important reasons for termination” that are not within the meaning of § 14 para. 1 sentence 1 no. 3 sentence 2 KStG are problematic in this context could be the undermining of the minimum term requirement if the parties involved can detach themselves from the profit or loss transfer agreement at any time by creating arbitrary reasons for termination.[142] The BFH has now clarified that a sprawling catalogue of important reasons for termination does not preclude a term clause to be recognised for tax purposes.[143] Whether a reason for termination in individual cases leaves the tax body unaffected is only then on the basis of the criterion of § 14 para. 1 sentence 1 no. 3 sentence 2 KStG if the contract is to be terminated within the minimum term.[144]
The profit and loss transfer agreement must be carried out during its entire validity period in accordance with § 14 para. 1 sentence 1 no. 3 sentence 1 KStG.[145] The term "period of validity" is not defined by law.[146] However, the systematic connection with the minimum contract duration for a congruence speaks of the validity and five-year period.[147] If a profit or loss transfer agreement that has not yet been implemented for five consecutive years is not implemented in one year, it is tax ineffective from the outset.[148] A profit or loss transfer agreement that has already been executed for the minimum duration of the contract and will not be executed in a later year is to be regarded as ineffective for tax purposes only for the year of non-execution.[149] According to the administrative opinion, the five-year term starts again if the contract is not executed after the expiry of the minimum contract duration, according to R 14.5 para. 8 KStR 2015. The literature criticizes the view because of the violation of the principle of section taxation.[150]
Typical sources of error which, in the absence of actual implementation, lead to the tax non-recognition of the profit transfer agreement are, for example, the incomplete assumption of losses, the impermissible non-transfer of profit, the transfer of free pre-contractual reserves and profit carry forwards, additions to the retained profits via the restriction of § 14 para. 1 no. 4 KStG and the early termination of the implementation of the contract due to accidental term clauses.
On the other hand, for the tax recognition of the implementation of the profit and loss transfer agreement, there are harmless cases of hidden distribution of profits to the body owner, since these are to be treated as anticipated profit transfer and hidden distributions of profits to outside partners, as well as the use of pre-contractual reserves to form the statutory profit reserve.[152] Similarly, the profit or loss transfer agreement is also deemed to have been carried out if the transferred profit or offset loss is based on an annual financial statement that contains erroneous balance sheet estimates, provided that it was effectively established, the error was not recognizable after careful examination and the error criticized by the tax administration is corrected in the next annual financial statements. [153]
As stated in the introduction, the objective of this seminar work is the literature-based elaboration of the tax requirements for the profit and loss transfer agreement, subject to compliance with the civil and company law requirements for a tax-effective profit and loss transfer agreement.
The elaboration shows that not only the tax requirements of the profit and loss transfer agreement are decisive for its effectiveness, but rather the tax effectiveness requirements are linked to the basic civil and company law elements of the contract.
As the elaboration of the tax requirements for the profit and loss transfer agreement shows, the close connection of the tax body with the company governed by public law of the profit and loss transfer agreement is the cause of many practical problems, since the attribution of the income of the company to the body carrier is only justified materially on the basis of a profit and loss transfer agreement within the meaning of § 291 AktG. Even if the time requirements of the profit and loss transfer agreement and its implementation have been clarified as far as possible, independent tax concepts, for example that of the important reason for an early termination of the profit and loss transfer agreement, are still quite contour-poor.
It is to be hoped that the legislator will take action and amend the decisive prerequisites of the profit and loss transfer agreement for the legal user more strictly. This would significantly relieve the tax jurisdiction and the tax administration and bring the tax location further forward by a mature group taxation.
[1] Schwan, DStR 2020, 575, 575 and 576.
[2] Kessler/Kröner/Köhler KonzernStR/Stangl, § 3, paragraph 131.
[3] BeckHdB AG v Franz, § 14 paragraphs 211 and 212.
[4] Brandis/Heuermann/Krumm, KStG, § 14, paragraph 200.
[5] Kessler/Kröner/Köhler KonzernStR/Stangl, § 3, paragraph 134; Gosch KStG v Neumann, KStG, § 14, paragraph 33.
[6] Brandis/Heuermann/Krumm, KStG, § 14, paragraph 103.
[7] BFH, judgment of 08.08.2001 – I R 25/00 = DStR 2002, 307, 307; BeckOGK v Witt, HGB, § 271 paragraph 103.
[8] Kaeser, consultant to DStR 30 2010, 56, 57.
[9] MüKoAktG v Altmeppen, AktG, § 291 paragraph 2.
[10] BeckOGK/Veil/Walla AktG, § 291 paragraph 45.
[11] BeckOGK/Veil/Walla AktG, § 291 paragraph 47.
[12] MüKoAktG/Altmeppen, AktG, § 291 paragraphs 1 and 2.
[13] MüKoAktG v Altmeppen, AktG, § 291 paragraph 1.
[14] Emmerich/Habersack/Emmerich, AktG, § 291 paragraph 2.
[15] Grigoleit v Servatius, AktG, § 291 paragraph 1.
[16] Grigoleit v Servatius, AktG, § 292 paragraph 2.
[17] Grigoleit v Servatius, AktG, § 292 paragraph 1.
[18] Grigoleit v Servatius, AktG, § 292 paragraph 47.
[19] MüKoAktG v Altmeppen AktG, § 291 paragraphs 45 and 46.
[20] Boor, RNotZ 2017, 65, 66.
[21] BeckOGK/Veil/Walla AktG, § 291 paragraph 101.
[22] Boor, RNotZ 2017, 65, 66.
[23] Koch Aktiengesetz v Koch, AktG, § 304 paragraph 5.
[24] Lüdicke/Sistermann UnternehmensStR/Schiessl/Brinkmann, § 4 paragraph 12.
[25] BeckOGK/Veil/Preisser, AktG, § 304 paragraph 5.
[26] MHdB GesR IV v Krieger, § 70 paragraph 56.
[27] Koch Aktiengesetz v Koch, AktG, § 291 paragraphs 18 and 23.
[28] Koch Aktiengesetz v Koch, AktG, § 291 paragraph 18.
[29] Brandis/Heuermann/Krumm, KStG, § 14, paragraph 103.
[30] Brandis/Heuermann/Krumm, KStG, §14, paragraph 104.
[31] MAH GmbHR v Römermann, § 20, paragraph 58.
[32] Koch Aktiengesetz v Koch, AktG, § 291 paragraph 5.
[33] Koch Aktiengesetz v Koch, AktG, § 291 paragraph 5.
[34] BeckOGK v Witt, HGB, § 271 paragraph 104.
[35] BeckOGK v Witt, HGB, § 271 paragraph 104.
[36] BeckOGK v Witt, HGB, § 271 paragraph 104.
[37] MüKoAktG v Altmeppen, AktG, § 291 paragraph 19.
[38] Boor, RNotZ 2017, 65, 67.
[39] BGH, Resolution of 24.10.1988 – II ZB 7/88 = DNotZ 1989, 102, 103.
[40] Koch Aktiengesetz v Koch, AktG, § 291 paragraph 8.
[41] Hölters v Weber Aktiengesetz v Deilmann, AktG, § 291 paragraph 9.
[42] Hölters v Weber Aktiengesetz v Deilmann, AktG, § 291 paragraph 9.
[43] BeckOGK v Witt, HGB, § 271 paragraph 103.
[44] MAH GmbHR v Mühlhäuser, § 17, paragraph 224.
[45] Brandis/Heuermann/Krumm, KStG, § 14, paragraph 108.
[46] MüKoAktG v Altmeppen AktG, § 293 paragraph 36.
[47] MüKoAktG v Altmeppen AktG, § 293 paragraph 33.
[48] BGH, Resolution of 24.10.1988 – II ZB 7/88 = NJW 1989, 295, 296.
[49] EBJS/Schaub, HGB, §8 paragraph 105; Koch Aktiengesetz v Koch, AktG, § 293 paragraph 8; Schöning v Steininger, NZG 2022, 253, 253 and 255.
[50] Schöning/Steininger, NZG 2022, 253, 257 and 258.
[51] Schöning/Steininger, NZG 2022, 253, 254.
[52] Emmerich/Habersack/Emmerich AktG, § 293 paragraph 46.
[53] BeckHdB AG v Franz, paragraph 14, paragraph 231.
[54] MüKoAktG v Altmeppen AktG, § 293 paragraph 97.
[55] BGH, Resolution of 24.10.1988 – II ZB 7/88 = NJW 1989, 295, 297.
[56] BGH, Decision of 30 January 1992 – II ZB 15/91 = NJW 1992, 1452, 1453.
[57] Altmeppen GmbHG v Altmeppen Anh. § 13 paragraph 44; Emmerich/Habersack/Emmerich, AktG, § 293 paragraph 4.
[58] MAH PersGesR v Pücklmann, § 26 paragraphs 27 and 28.
[59] OLG Hamburg, judgment of 29.07.2005 – 11 U 286/04 = NZG 2005, 966, 966.
[60] Reichert GmbH & Co. KG v Liebscher, § 51, paragraph 124.
[61] Arens, NZG 2021, 223, 223.
[62] BGH, Resolution of 24.10.1988 – II ZB 7/88 = NJW 1989, 295, 295; Krafka RegisterR/Krafka, paragraph 1111.
[63] MüKoAktG v Altmeppen, AktG, § 294 paragraph 1.
[64] MüKoAktG v Altmeppen, AktG, § 294 paragraph 7.
[65] Spindler/Stilz/Veil, AktG, § 294 paragraph 6.
[66] MüKoAktG v Altmeppen, AktG, § 294 paragraphs 24 and 25.
[67] MüKoAktG v Altmeppen, AktG, § 294 paragraph 10.
[68] Boor, RNotZ 2017, 65, 71; MHdB GesR IV v Kraft, § 72 paragraph 54.
[69] BFH, judgment of 23 August 2017 – I R 80/15 = DStR 2017, 2803, 2803.
[70] Hölters/Weber/Leuering/Goertz AktG, § 316 paragraph 7; Grewer, DStR 1997, 745, 745.
[71] Boor, RNotZ 2017, 65, 72.
[72] MüKoAktG v van Rossum, AktG, § 304 paragraph 21.
[73] Grigoleit v Servatius, AktG, § 304 paragraph 1.
[74] Grigoleit v Servatius, AktG, § 304 paragraph 12.
[75] MHdB GesR IV v Kraft, § 72 paragraph 72.
[76] MüKoAktG v van Rossum AktG, § 304 paragraph 64.
[77] MHdB GesR IV v Kraft, § 72 paragraph 72.
[78] Koch Aktiengesetz v Koch, AktG, § 293e paragraph 4.
[79] MüKoAktG v Arnold AktG, § 216 paragraph 68.
[80] Emmerich/Habersack/Emmerich AktG, § 305 paragraph 81.
[81] BGH, judgment of 05.11.2001 – II ZR 119/00 = NJW 2002, 822, 823.
[82] BeckHdB GmbH v Vogt, § 21 paragraphs 58a-59; Grigoleit v Servatius, AktG, § 304 paragraph 4.
[83] Grigoleit v Servatius, AktG, § 304 paragraph 4.
[84] Deilmann, NZG 2015, 460, 460.
[85] BeckOGK v Witt, HGB, § 271 paragraph 118.
SEGMENT043 [86] Deilmann, NZG 2015, 460, 461.
[87] Emmerich/Habersack/Emmerich, AktG, § 297(1) and (2).
[88] MAH AktR v Schlossser, § 54, paragraph 88.
[89] Deilmann, NZG 2015, 460, 461.
[90] MAH AktR v Schlossser, § 54 paragraph 92
[91] Grigoleit v Servatius, AktG, § 297 paragraph 27.
[92] Krafka RegisterR/Krafka, paragraph 1614.
[93] BeckOGK v Witt, HGB, § 271 paragraph 103.
[94] Gosch KStG v Neumann, KStG, § 14, paragraph 207.
[95] MHdB GesR IV v Kraft, § 72 paragraphs 55, 56 and 57.
[96] Koch Aktiengesetz v Koch, AktG, § 302 paragraph 8.
[97] BeckOGK v Witt, HGB, § 271 paragraph 108.
[98] MHdB GesR IV v Kraft, § 72 paragraphs 58 and 59.
[99] MHdB GesR IV v Kraft, § 72 paragraph 53.
[100] Beck Bil-Komm./Grottel/Baldamus, HGB, § 271 paragraphs 104 and 106.
[101] Beck Bil-Komm./Grottel/Baldamus, HGB, § 271 paragraph 104.
[102] Brandis/Heuermann/Drüen, GewStG, § 2 paragraph 141.
[103] Brandis/Heuermann/Drüen GewStG, § 2 paragraph 140.
[104] MüKoAktG v Altmeppen AktG, § 291 paragraph 145.
[105] MüKoAktG v Altmeppen AktG, § 291 paragraph 145.
[106] Gosch KStG v Neumann, KStG, § 14, paragraph 312a; Grigoleit v Servatius, AktG, § 291 paragraph 64.
[107] Emmerich/Habersack/Emmerich AktG, § 291 paragraph 64.
[108] Emmerich/Habersack/Emmerich AktG, § 291 paragraph 64.
[109] MüKoAktG v Altmeppen AktG, § 291 paragraph 145.
[110] Emmerich/Habersack/Emmerich AktG, § 291 paragraph 65.
[111] MüKoAktG v Altmeppen AktG, § 291 paragraph 147.
[112] Emmerich/Habersack/Habersack, AktG, § 324 paragraph 7.
[113] Emmerich/Habersack/Habersack, AktG, § 324 paragraph 7.
[114] Gosch KStG v Neumann, KStG, § 14, paragraph 313.
[115] Gosch KStG v Neumann, KStG, § 14, paragraph 323.
[116] Gosch KStG v Neumann, KStG, § 14, paragraph 315; Kessler/Kröner/Köhler KonzernStR/Stangl, § 3, paragraph 250.
[117] Emmerich/Habersack/Emmerich AktG, § 301 paragraph 32.
[118] MüKoAktG v Altmeppen, AktG, § 301 paragraph 21; Schell v Schrade, DStR 2017, 86, 87.
[119] MüKoAktG v Altmeppen, AktG, § 301 paragraph 21; MüKoHGB v Reiner, HGB, § 272 paragraph 104.
[120] Kessler/Kröner/Köhler KonzernStR/Stangl, paragraph 3, paragraph 221.
[121] Emmerich/Habersack/Emmerich, AktG, § 302 paragraph 18.
[122] Kessler/Kröner/Köhler KonzernStR/Stangl, paragraph 3, paragraph 222.
[123] Kessler/Kröner/Köhler KonzernStR/Stangl, paragraph 3, paragraph 222.
[124] BeckHdB GmbH v Vogt, § 21 paragraphs 107c-108b; Kessler/Kröner/Köhler KonzernStR/Stangl, § 3, paragraph 222.
[125] BFH, judgment of 03.03.2010 – I R 68/09 = RNotZ 2010, 420, 420.
[126] Schwan, DStR 2020, 575, 576.
[127] BFH judgment of 10.05.2017 – I R 51/15 = DStR 2017, 2109 paragraph 11.
[128] BFH judgment of 12 January 2011 − I R 3/10 = NZG 2011, 596 paragraph 14; Olbing, NZG 2011, 773, 774.
[129] BFH, judgment of 28.11.2007 – I R 94/06 = DStRE 2008, 878, 878.
[130] BFH, judgment of 28.11.2007 – I R 94/06 = DStRE 2008, 878, 881.
[131] Beck Bil-Komm./Grottel/Baldamus, HGB, § 271 paragraph 133.
[132] BGH, judgment of 05.04.1993 – II ZR 238/91 = NJW 1993, 1976, 1976.
[133] Kessler/Kröner/Köhler KonzernStR/Stangl, paragraph 3, paragraph 230.
[134] BFH, judgment of 10.05.2017 – I R 19/15 = DStR 2017, 2112, 2112 and 2113.
[135] BeckOGK v Witt, HGB, § 271 paragraph 117.
[136] BeckOGK v Witt, HGB, § 271 paragraph 117.
[137] Gosch KStG v Neumann, KStG, § 14, paragraph 235.
[138] Gosch KStG v Neumann, KStG, § 14, paragraph 235.
[139] Kessler/Kröner/Köhler KonzernStR/Stangl, paragraph 3, paragraph 235.
[140] Scheifele v Marx, DStR 2014, 1793, 1802.
[141] Scheifele v Marx, DStR 2014, 1793, 1798.
[142] Niedersächsisches FG, judgment of 10.05.2012 – 6 K 140/10 = DStRE 2013, 1237, 1237.
[143] BFH, judgment of 13.11.2013 – I R 45/12 = DStR 2014, 643, 644.
[144] Deilmann, NZG 2015, 460, 461.
[145] Brandis/Heuermann/Krumm, KStG, §14, paragraph 134.
[146] Scheifele v Marx, DStR 2014, 1793, 1799.
[147] Scheifele v Marx, DStR 2014, 1793, 1799.
[148] BeckOGK v Witt, HGB, § 271 paragraph 112.
[149] BeckOGK v Witt, HGB, § 271 paragraph 112.
[150] Scheifele v Marx, DStR 2014, 1793, 1799.
[151] Beck Bil-Komm./Grottel/Baldamus, HGB, § 271 paragraph 135.
[152] Beck Bil-Komm./Grottel/Baldamus, HGB, § 271 paragraph 135.
[153] Beck Bil-Komm./Grottel/Baldamus, HGB, § 271 paragraph 134.
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.