date | theme

23. March 2021 | The ratio of § 6 para 3 to para 5 EStG (this contribution)

16. February 2021 | How to save the loss carry forward in the transformation of your company

14. January 2021 | Tax neutral merger: converting GmbH into partnership

12. January 2021 | Conversion Tax Act – Scope and Exceptions

02. November 2020 | Merger of two corporations

15. October 2020 | Conversion Law: Significance and Application in the Transformation of Enterprises

14. October 2020 | Growth in partnerships: general legal succession and design possibilities

The provision of § 6 para. 3 EStG enables a free transfer of companies (Alt. 1), branches (Alt. 2), co-entrepreneur shares (Alt. 3) as well as the transfer of parts of a co-entrepreneur share (Alt. 4) and the incorporation into an existing sole proprietorship (Alt. 5).[1] The provision of § 6 para. Transfers of assets between different business assets and special business assets at book values. Such arrangements shall facilitate operational restructuring. [2] The concrete procedure in the application of § 6 Abs. 3 and paragraph 5 EStG were unclear for a long time. Although the financial administration already with the BMF letter of 03.03.2005 allegedly to questions of doubt in connection with the application of § 6 para. 3 and para 5 EStG, was in the meantime from the point of view of the BFH in several judgments on the topics contained in the BMF letter. This has led the financial administration to fundamentally revise the BMF letter and publish it on 20.11.2019. [4]

Converting EU into GmbH: Tax-neutral contribution

1. simultaneous applicability of § 6 para. 3 to para. 5 EStG

The free transfer of individual assets is to be distinguished from the free transfer of operational entities which are subject to the special regulation of § 6 para. 3 EStG. In principle, it can be assumed that the provision of para. 3 in its field of application (transfer of holdings, branches and co-entrepreneur shares) para. 5 is priority. [5] Should para 3, however, not apply, because e.g. B. not all essential operating bases are transferred, in respect of the assets which have been transferred individually, if the actual conditions are met, the para. 5 can be applied. [] 6]

In other words, the operation is dismantled, as a result of which a book value continuation is no longer possible and the hidden reserves are revealed. [7] More details on the dismantling of operations in chapter 3 may be provided elsewhere, at the time of transfer of the share of the total hand assets functionally essential operating assets / special operating assets according to § 6 para. 5 S. 3 EStG at book value or according to § 6 para. 5 S. 1 or S. 2 EStG to be transferred to another business assets / special business assets of the taxpayer, whereby § 6 para. 1 EStG is nevertheless applicable to the transfer of the reduced share of the co-entrepreneur. [] 8]

Basically, the BFH justifies this teleologically and systematically by the equality of privileges in § 6 para. 3 and para 5 EStG and the therefore touching fundamental combinability, the continuing fiscal arrest of the hidden reserves and the blocking periods serving to avoid abuse. [9] Deviations from this rule can only be made in cases of genuine dismantling in which the viability of the company ends.[10] According to BFH, it is also irrelevant that the co-entrepreneur sells special business assets on the basis of a single plan before transferring the remaining co-entrepreneur share to him free of charge. [] 11]

Accordingly, the principles of general planning jurisdiction are set out in § 6 para. 3 EStG not applicable. [12] The opinion of the tax administration has changed as a result of the new BMF letter and is basically based on the same view of the BFH.[13] This can be approved insofar as after the transfer of individual essential operating bases, a business still remains. [14] However, in the event of a dissolution of the business, the tax advantage as defined in § 6 para. 3 EStG to fail. [15] It must be borne in mind that, as an exception to the taxpayer principle, this is itself in need of justification. [] 16]

The following example illustrates the simultaneous applicability of § 6 para. 3 and para 5 EStG.

Example:[17]

Father H is a 50% co-contractor of HP-OHG and holds a plot of land in his special assets that he leases to HP-OHG as a storage space. On 01.01. he transfers the property to his sole proprietorship while continuing the book value according to § 6 Abs. 5, p. 1 EStG. At the same time, he transfers his share of the company to his son P.

Solution: Since both book value privileges are applicable at the same time, the process is overall performance-neutral. The transfer of the special assets to the sole proprietorship of the H takes place at book value according to § 6 para. 5 S. 2 EStG, the transfer of the share of the co-entrepreneur according to § 6 para. 3 EStG.

The view of a simultaneous application of § 6 para. 3 and para. 5 EStG is not considered if after the outsourcing of functionally significant operating assets/special operating assets acc. § 6 Abs. 5 EStG no longer exists an operational unit (operational disintegration). [] 18)

There is no definition for the term "decommissioning" in the context of § 6 para. 3 EStG, however, it means the dissolution of the operational unit by the distribution of the essential operating bases among different hands.[19] Therefore, for the applicability of § 6 para. 3 EStG to check in each case at the time whether even after the outsourcing in accordance with § 6 para. 5 EStG still a functioning operating unit (“remaining operating assets”) according to § 6 para. 3 EStG can be transferred. The prerequisite for this is that the remaining “remaining operating assets” are viable from an economic point of view and that they continue to fulfil all the characteristics of an operation or part of an operation within the meaning of § 16 EStG. [20] The principles for the transfer of a co-contractor share apply equally to the transfer of a (partial) business, since such units in addition to the transfer of (partial) co-contractor shares to the same extent according to § 6 para. 3 EStG are eligible. 21]

If the remaining ‘remaining operating assets’ are no longer a functioning operating unit, the remaining ‘remaining operating assets’ are dismantled. Thus, in principle, a not in accordance with §§ 16 Abs. 4, 34 EStG, since a temporally and factually related transfer or transfer of an essential operating basis to book values pursuant to § 6 para. 5 EStG the use of the benefits according to §§ 16 para. 4, 34 excludes EStG. [] 22]

The financial administration thus clarifies that the overall planning jurisdiction within the framework of §§ 16 para. 4, 34 EStG continues to be applied – with all negative consequences. [23] It assumes – incorrectly – that § 16 Abs. 4 EStG is also intended to promote the aggregated realisation of hidden reserves, but in fact the exemption regulation only creates an age-related relief. [24] In addition, the norm is to be understood rather time-related, since § 16 EStG only regulates the object and transaction of sale. [25] At least prior spin-offs according to § 6 Abs. 5 EStG the sale of a material group and the receipt of the allowance pursuant to § 16 para. 4 does not prevent EStG. Nevertheless, they can lead to the refusal of the tariff advantage according to § 34 EStG, unless all hidden reserves are discovered. [] 26]

From an economical disintegration of the previous operation in the sense of an operating task acc. § 16 EStG cannot be assumed solely because the book value privilege must also be granted for the free transfer of an operating unit that had been reduced up to the time of the transfer. [] 27]

If, on the basis of a uniform planning, functionally essential operating assets/special operating assets are either withdrawn (e.g. by free transfer to a member) or sold at common value before the transfer of the co-entrepreneur's share, the co-entrepreneur's share may be sold in accordance with § 6 para. 3 EStG at book value, provided that the remaining ‘remaining operating assets’ remain a functioning operating unit. [28] In contrast, § 6 Abs. 3 EStG only applies if functionally significant operating assets/special operating assets were either sold or withdrawn before the date of transfer of the co-entrepreneur’s share. Conversely, a simultaneous or day-equal sale or withdrawal is – with the exception of transfers and transfers according to § 6 para. 5 EStG (see Chapter 1) – for a book value continuation according to § 6 para. 3 EStG harmful.[29] In addition, in the opinion of the tax administration, the continuation of the book value should be refused in the case of simultaneous or identical-day transfer of special operating assets into private assets, since the functionally essential special operating assets were still in the operating assets of the transferor at the time of withdrawal and in such a constellation not all the essential operating bases of the existing operation still existing at the time of transfer according to § 6 para. 3 S. 1 EStG. [30]

However, if, according to the reasoning of the tax administration, the amount of operating assets at the time of transfer is important, then at most the simultaneous withdrawal or a withdrawal on the same day after the time of transfer can be detrimental to the book value. Taking the same day as soon as it is reached even a logical second before the transfer of the share of the co-entrepreneur leads to the functionally essential special business assets no longer belonging to the business assets. [31] The tax administration’s view in this context is supported by the BFH judgment referred to in the BMF letter,[32] which is based on the assets available at the time of the transfer. [33] The proceedings currently pending at the BFH (BFH IV R 14/18) lead to a further contouring of the highest court principles on this problem. [34]

Example:[35]

Father H was a limited partner of H-KG to whom he had leased a property (essential operating basis). H transferred his entire share of the limited partnership to his son P free of charge in July 2018. Already in March 2018 H had the property according to § 6 para. 5 S. 3 No. 2 EStG at book value transferred to the newly founded commercially minted X-GmbH & Co. KG.

The requirements for a book value transfer of the limited partnership according to § 6 para. 3 EStG are present, even if the property (essential operating basis in the special business assets) is previously in accordance with § 6 para. 5 p. 3 no. 2 EStG was outsourced to X-GmbH & Co. KG and therefore not also transferred to the son P, since, according to case law,[36] a simultaneous application of the book value privileges of § 6 para. 3 and para 5 EStG is possible.

If functionally non-essential operating assets are retained, it is subject to the application of § 6 para. 3 S. 1 EStG not contrary to.[37] Accordingly, it can be sold or according to § 6 Abs. 5 EStG are transferred to book values. [38] It is also subject to the application of § 6 Abs. 1 EStG with regard to the transfer of the co-entrepreneur's share, if at the time of the transfer of the co-entrepreneur's share functionally non-essential special operating assets are removed or according to § 6 para. 5 EStG is transferred or transferred at book value to another operating asset. [39] In the case of a withdrawal of the special business assets, a current profit arises in principle.[40]

The topics explained in chapters 1 to 4 also apply to the transfer of part-entrepreneur shares.[41] A regulatory correspondence existed only for the consequences of the spin-off of essential and insignificant operating bases in the old edition of the BMF letter. [] 42]

5th Conclusion

The legislature wanted with the provision of § 6 para. 3 and para 5 EStG enable or facilitate restructuring in order, for example, to avoid the free transfer of business (especially in the succession of generations) of tax burdens. That this is not always problem-free or unquestionably possible with extensive legal knowledge, has the opinion of the tax administration on the relationship of § 6 para. 3 to para 5 EStG. The BMF letter sets particularly welcome accents in the abolition of the overall plan consideration in the interaction of § 6 para. 3 with para 5 EStG, the consequences of which are also regulated for quota and disquotal special business asset transfer operations.

The BFH jurisprudence, which is generally favorable and consolidated for taxpayers, is consistently implemented. The BMF letter, which is relatively extensive with 16 pages, is intended for tax consultants with regard to future corporate reorganizations that require the free transfer or transfer of funds. Granting of (partial) co-entrepreneur shares of this, constitute an indispensable guide.