date | theme

15.06.2019 | Division of operations: Requirements – Legal consequences – Avoidance

17.06.2019 | Legal consequences in the split of operations

19.06.2019 | Personal interdependence: domination – groups of people – relatives

21.06.2019 | The material integration in the division of operations (this contribution)

24.06.2019 | The minority shareholder at Besitz-GbR

27.06.2019 | The Wiesbaden model: avoiding the division of businesses with spouses

A material connection exists if the holding company leaves the operating company at least one essential operating basis for use. The question of whether it is an essential operating basis must be considered only from the point of view of the operating company. A prerequisite for a material connection is therefore that it is an economic good which is located in the holding company (usually sole proprietorship or GbR) and the lease to the operating company (usually GmbH) is an essential operating basis.

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.

1. Essential operating basis of material interdependence

The essential operating basis is not defined by law. There is a lack of a legal definition of the essential operating basis, although this feature is not only for the existence of an operating split, but also e.g. also in the case of leasing, in the transfer of holdings or branches of holdings to partnerships or corporations, in the sale and abandonment of holdings. While case law under § 16 EstG determines the essentiality of an operating basis not only functionally, but also quantitatively, it focuses solely on a functional approach in the division of operations. [8] Thus, unlike the sale or cessation of operations, it does not matter whether the transferred asset contained or contains hidden reserves. [9] Furthermore, it does not matter whether the asset could be replaced on the market at any time. Unfavorable or run-down assets can also be an essential operating basis. [] 10]

1.1 Definition Essential Operating Basis

According to the BFH jurisprudence, essential operating bases in the context of the division of operations are those assets which are of particular economic importance for the management of operations and which are necessary for achieving the purpose of the operation. [11] Tangible and intangible assets as well as movable and immovable assets can be considered as an essential operating base. It does not matter what type of essential operating basis it is. The principle that the essential operating base provided for use is not of minor importance in the context of the overall picture of the operating company's situation constitutes a material link.

According to current BFH jurisprudence, a building which is transferred to the operating company for use is basically an essential operating basis.[12] The same applies to factory and workshop buildings as well as to business or shop premises. Mobile fixed assets, such as machinery, are considered to be an essential operating base if they are necessary for the operation and are not of completely secondary importance compared to other fixed assets. [13] It does not matter whether the machine is a series product or a custom-made product. [] 14]

1.2 Case law on the essential operating basis

When answering the question of whether the assets transferred to the operating company for use by the holding company are an essential operating basis, all circumstances of the individual case must be taken into account and assessed according to the overall picture of the actual and intended use (so-called overall picture viewing). [15] This is an actual task, i.e. it is the task of the tax court to determine and assess the circumstances giving rise to the overall picture.

When an asset is an essential operating basis for the operating company, the case-law has ruled in particular on situations in which the holding company has transferred a built-up property or a part of it to the operating company for use. Over time, the legal principles developed by case-law have always changed in a tax-stricter manner in the sense that the assumption of an essential operating basis and thus the factual interconnection and thus the division of operations is fixed on not too narrow criteria.

2nd conclusion

It is irrelevant in what form the essential operating basis is left to the operating company. Thus, according to settled case-law, the operating basis can be provided by a contract under contract[16], such as rent, rent, loan[17] or a simple license agreement. However, the transfer of use can also take place on a material basis[18], such as a usufruct or inheritance right. Furthermore, it is basically not important whether the assignment is paid. However, it is problematic that the intention to make a profit in order to receive commercial income from the lease company must be present. If the operating company is organised in the form of a corporation, the profit intention of the holding company, despite the lack of income, is justified by the fact that the transfer of use can be expected to increase the value of the shares and distributions. [] 19]