A division of operations can also be used for the benefit of a company. However, the advantages must be considered in a differentiated way. They can be divided into business and income tax and differ drastically in a corporation or partnership. It should also be distinguished whether the owner and the operating company are the persons or corporation or whether it is a unitary corporation or a unitary partnership.

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 Business Benefits

The liability risk of company and shareholders is an important criterion for choosing the legal form of a company. Every company is exposed to entrepreneurial risk, but the aim is to protect both private and operational assets from liability. In the basic case of a commercially active sole proprietor or partnership, the entrepreneur has a very high liability risk, since he is liable personally, directly and, if necessary, in solidarity.

In contrast, at a GmbH the consequences of a liability are designed in such a way that the GmbH is liable only with its own assets.[180] For both cases, the operating splitting model can result in a significant minimization of the adhesive mass. In this case, a sole proprietorship or partnership is formed as a holding company with the assets of the company and a limited liability company is formed as an operating company. In the event of a possible liability situation in the operating company, the former assets of the commercial enterprise are secured and are not part of the liability mass, since the assets have been assigned to the holding company. [181]

A possible generational change can be facilitated by a justification of the division of operations, as long as the prerequisites of the factual and human connections continue to exist. Often, the protection of the former owner at an advanced age is problematic, because with the transfer of his established company, he can no longer earn income. However, this income can be earned from the holding company as passive income, while the successors manage the operating company and thus the operating business. [182]

Due to the publicity obligations, additional costs for consulting and final services arise from a certain size class of a company, which can be reduced or prevented by achieving a business split. The separation of assets and commercial business activities, and thus the reduction of the balance sheet total, can reduce the previously imposed publicity obligation according to § 1 (1) PublG in accordance with § 265 HGB.

2nd income tax advantages

2.1 Comparison to the Unified Corporation

As part of the classical division of operations, a partnership / individual company as a holding company can deduct a trade tax allowance of € 24,500 according to § 11 (1) GewStG. By comparison, a single corporation cannot benefit from this tax relief. The trade tax allowance is deducted in the context of the determination of the business income and directly reduces the business tax burden of the company.[184] Despite the interconnection of two companies through the material and personnel interconnection, two independent businesses are present in a joint entrepreneurial division, each of which can deduct the trade tax allowance, so that this is granted twice in total to the overall construction of the company and an even greater advantage compared to a single company. [185]

Within the framework of the established commercial operation on the part of the holding company and the fulfilment of the requirements of § 35 EStG as a commercial enterprise, the shareholders are entitled to the crediting of trade tax. In contrast, in the case of a unified corporation, which is not one of the beneficiary companies within the meaning of § 35 EStG, the missing accounting potential remains in the GmbH, so that the trade tax represents a pure burden for the corporation. Through a deliberate distribution of profits among the shareholders, a lift of 380% of the burdensome trade tax can be credited in the personal ownership company, so that the credit volume is not lost in the GmbH.[187]

2.1.1. Loss utilization of the holding company

Due to the limitation of liability of a corporation as well as the position as an independent legal object, a loss assumption is only possible within the framework of the GmbH if profits are made in the following years. Despite the shares of the shareholders, an allocation of the loss achieved is not permissible.[188] Unlike in the case of a partnership in which the shareholders have unlimited liability, i.e. both with the operating and with their private assets, an allocation of losses to the shareholders with general liability is permissible (in the case of a limited partnership within the framework of § 15a EStG[189]). The shareholding loss of the shareholders is offset against other income and thus reduces the taxable income and accordingly the income tax burden of the taxpayer.[190]

Due to the establishment of a classic operating split, a loss is to be transferred to the shareholders within the framework of the partnership, whereas a possible loss on the part of the working capital company is not attributable. [191] By controlling a shareholder or a group of persons, the profits or Losses are managed and distributed. The amount of the royalty is a direct influence on the profit of the owning company, since it is usually the only source of income of the company. All costs such as depreciation, financing expenses and costs other than expenditure shall be deducted from the revenue. A deliberate loss on the part of the owning company can be generated so that the shareholders can use it to minimize their income tax burden. As a result, this is a real advantage over a unitary corporation.[192]

2.1.2 Formation of a Company Value

The formation of a goodwill can be due to the establishment of a business split if a previous sole proprietorship continues its commercial activity in the operating company and also indirectly uses a goodwill (GuF) hidden with the use of the assets of the holding company. For this GuF, however, a corresponding fee must also be paid to the holding company. [193] Generally, company value is the value that the company identifies as added value, such as a good reputation, to its actual assets. Goodwill acquired for remuneration is to be accounted for in accordance with § 246 (2) S. 4 HGB i.V.m. § 5 (2) EStG and written off for 15 years according to § 7 (1) S. 3 EStG, so that the income is reduced by the transfer of the goodwill to the operating company and the holding company receives additional money in addition to the income for the transfer of use of the assets, if this is desired by the shareholders. [195]

2.1.3. Profit distributions at Einheits-GmbH

The distributions of a Einheits-GmbH are generally subject to the withholding tax of 25% at the level of the shareholders. In the classical division of operations, in which the shares of the GmbH are held in the operating assets of the sole proprietorship, one benefits from the advantage of the partial income procedure. In direct comparison, the distribution with the partial income procedure is more favorable if the income tax burden of the shareholder is less than 41.67%. The partial income procedure is always more favorable if costs for the shares have arisen and these are deductible within the framework of § 3c (2) to 60%. In contrast to the withholding tax, where only the savings lump sum can be deducted 801 € / 1,602 €.[196]

The advantage for non-extracted profits according to § 34a EStG is only available to sole proprietors and partnerships, so that the taxation of profits in the partnership and the associated favorable taxation is not available to a corporation. Although a later withdrawal of the profit share is post-taxed with 25%, the entrepreneur can gain an interest advantage through later taxation. This advantage is denied to shareholders of a corporation. This requirement may be applied to both the owner and the operating company in the event of a joint venture split. [197]

2.1.4. Conclusion

The shown advantages of an allowance pursuant to § 16 (4) EStG or taxation with the reduced tax rate of 56% pursuant to § 34 EStG are granted only capital gains within the meaning of § 16 (2) EStG by partnerships and individual companies. In this respect, the termination of a partnership offers a clear advantage over the termination of a corporation. As a result of the division of operations, the holding company can thus be terminated with benefits for income tax purposes, whereas the relinquishment profit of the working capital company should not be too high, since as a rule there are no assets and thus no hidden reserves in the operating company. [198]

2.2 Comparison to the unit partnership

An advantage over a partnership is the deductibility of managing directors’ salaries and pension provision in the working capital company in the classical division of operations. While in the case of a single partnership, any payments in the form of salaries to the shareholders as well as additional wage and salary costs are added off-balance sheet, these reduce the tax profit of the corporation and the associated tax burden. This deductibility is legitimised by the fact that the civilly concluded employment contracts are recognised for tax purposes and thus form the basis for the deductibility. The general manager salary according to § 4 (4) EStG and the pension provision according to § 6a EStG are deductible.[199] For shareholders who hold shares in both companies, it is advisable to earn their income from the managing director's salary[200] at the operating company if their income tax rate is 45%.[201] A pension provision is recommended for the corporation both for a tax reduction and for a liquidation advantage.[202]

2.3 Comparison to the Unit Capital and Unit Partnership

Due to the entrepreneurial risks of a commercial entrepreneur, age-appropriate protection is difficult to guarantee. By justifying the split-up of the company and the lease/rental income independent of the economic cycle, it is possible to ensure the family maintenance of relatives.[203]

2.4 Comparison to rental and lease

According to a BMF letter from 2009, the holding company is entitled to the formation of an investment deduction amount according to § 7g EStG. In contrast, the deduction of an investment deduction amount in the case of private letting and leasing is not permitted due to a lack of factual requirements – no participation in economic traffic.[205] For the division of operations, however, the special feature applies that the size characteristics of § 7g (1) S. 2 No. 1 EStG of the ownership and operating company must be audited separately.[206]