Suppose a GmbH shareholder owns two GmbHs and wants to transfer money from one to the sister GmbH. You can distribute the money as a dividend to the shareholder and then pay it into the sister GmbH. However, in this case, the dividend must first be taxed. If possible, of course, this should be avoided. The second way is to transfer a loan from one GmbH to the sister GmbH. Although there are hardly any taxes, this excludes the transfer of the money into the equity capital of the sister GmbH. A third possibility is the separation of a part of the GmbH together with the money. However, the division constitutes a transfer of the associated shares of the company. In the process, hidden reserves are exposed taxable.

We present a fourth design with which the money can be transferred to the sister GmbH without triggering taxes. Here we assume that in addition to the money, there is also a business operation as a partial operation in the first GmbH. This makes it possible for the GmbH to establish a subsidiary GmbH with the money. Subsidiary GmbH is thus regarded as a further subsidiary. And a sub-operation can be split off by the GmbH tax-neutral to the sister GmbH. Sister GmbH receives the participation in the subsidiary GmbH containing the money. After a reasonable period of time, the subsidiary GmbH can then be merged with the sister GmbH now owning it.

As a tax consultant, you always take on client orders that arise from a special situation. One such challenge is the tax-neutral transfer of assets between two GmbHs of one and the same shareholder. Therefore, these companies can also be considered as sister GmbHs.

If the shareholder now wants to transfer money that is present in the equity of one GmbH to the sister GmbH in order to strengthen it financially, then he of course also considers whether this can also take place without taxes. Therefore, first of all, we want to look at what possibilities actually exist and which of them can be implemented tax-neutrally.

Transferring money to sister GmbH: Loans

A very simple method to transfer money from a GmbH to a sister GmbH is the granting of a loan. This has the advantage in particular that it does not imply any significant taxation. Although one should pay attention to an interest rate, but with an appropriate interest rate of around 1%, as is currently the market, the tax should be of little influence. However, if no interest rate is provided, the Treasury takes a discount prescribed by law at a significantly higher interest rate.

Although granting a loan is an elegant and quickly implementable solution to transfer money to a sister GmbH, it also has a potentially significant disadvantage. Because if you actually want to take the money out of the equity of the GmbH in order to transfer it permanently to the sister GmbH, then the loan is excluded in this respect as an option. After all, a loan is only a temporary rather than a permanent availability of the money provided.

Transferring money to sister GmbH: Paying dividends

So we are now looking for ways to transfer money from equity permanently to sister GmbH. One can assume that the money in equity comes from thesaurated profits. If this is the case, then it is of course possible to pay it out to the shareholder, so that the latter can then pay it into the equity of the sister GmbH.

However, it is understandable if you as a GmbH shareholder could rather transfer the money to the sister GmbH without the capital gains tax. After all, slightly more than 25% of the dividend and thus of the transferable money goes to the Treasury instead of to the sister GmbH.

Furthermore, there is the option to transfer the money to the sister GmbH by splitting off. For this purpose, the money assets are combined with a sub-area of the GmbH in order to split it off to the sister GmbH.

However, the hidden reserves must be observed. Because a spin-off means that the shares of the GmbH, which are connected to this part, are also transferred. And in conversion tax law this is tantamount to a sale of shares, which in turn is taxable. Although the hidden reserves, which contain the money we actually want to transfer, can basically be set at zero, this is different for the GmbH shares. Because it can be assumed that the shareholder founded his GmbH with significantly less funds than he would now like to split off with the part, this means that the hidden reserves make up the difference between the low acquisition costs and the money to be transferred. Thus, a correspondingly high tax is to be expected in the separation on the sister GmbH. This too would like to avoid a GmbH shareholder.

Transferring money to sister GmbH: our design model

After we have presented and evaluated the initially obvious alternatives, we now come to our model. We want to realize all positive aspects and wishes of the GmbH shareholder. At the same time, however, we also ensure that taxation is excluded and that the money actually gets into the equity of Schwerster-GmbH.

In doing so, we modify the last model of transmission by splitting. Provided that the GmbH, which contains the assets to be transferred, has its own business, it can establish a subsidiary GmbH with the money that its shareholder wishes to transfer to the sister GmbH. The shareholding in the subsidiary GmbH is then considered to be, in addition to the business operations, a further part of Mutter GmbH, provided that Mutter GmbH holds a 100 % stake in the subsidiary GmbH. And this is of course the case here (we will discuss the tax relevance of this condition separately). This makes it possible to split off the subsidiary GmbH as a subsidiary to the sister GmbH. If this is done at book values, then this is tax neutral.

In this way, the sister GmbH first receives the participation of the previously founded subsidiary GmbH. In order for the money contained in the subsidiary GmbH to now also get into the equity of the sister GmbH they now own, one only has to wait a reasonable period. This avoids the suspicion of misuse of design. A merger of the subsidiary GmbH to the sister GmbH is then carried out. And so the money gets into the equity of the sister GmbH without taxes being incurred.

Legislative Basis for the Tax Neutrality of our Design Model

In order to explain why exactly the spin-off of a part of the company, as we operate in our model, does not trigger taxation, a look into the conversion tax law is necessary. §§ 11, 13 and 15 UmwStG play a prominent role here.

6.1. § 11 UmwStG regulates the taxation of the transferring GmbH

First we look at what § 11 paragraph 1 UmwStG regulates. It states that, among other things, a transfer of assets, including our spin-off, must be valued at the common value. In other words, the hidden reserves are to be taxed. However, paragraph 2 of the same paragraph applies a limitation. Because on request you can also transfer the assets tax-neutral to book values. If one chooses this way, the conversion for the separating parent GmbH remains without tax consequences.

6.2. § 13 UmwStG regulates the taxation of the GmbH shareholder

Next we observe § 13 UmwStG. This refers to the “taxation of the shareholders of the transferring entity”, as the paragraph is appropriately titled. Because even the shareholder of Mutter-GmbH should not have to pay taxes in our design model. Here, too, the first paragraph calls for a taxation of hidden reserves, while the second paragraph gives the option of a tax-neutral transfer to book values by application.

6.3. § 15 UmwStG regulates taxation in the case of separations

Now we turn to the decisive § 15 UmwStG. On the one hand, the second sentence in the first paragraph stipulates that § 11(2) of the UmwStG and § 13(2) of the UmwStG are applicable only if, in the case of the hive-off of a branch, a further branch remains with the transferring entity. In our model, the remaining sub-operation corresponds to the originally existing business operations of Mutter-GmbH. Furthermore, the third sentence specifies what may be considered a transferable sub-entity. It states that this means participation in a limited liability company ‘which comprises the total nominal capital of the company’. We also fulfilled this condition with the subsidiary GmbH, in which the parent GmbH is 100% involved.

Before we combine all legal threads into a quintessence, we still observe § 15 paragraph 2 UmwStG. It concerns a period of three years. If the subsidiary GmbH was founded less than 3 years before the subsidiary GmbH was split into sister GmbH, then § 11(2) UmwStG should not apply. In other words, if the transfer takes place before the expiry of the deadline, the transfer of the subsidiary GmbH is to tax its hidden reserves.

6.4. different tax effects at Mutter-GmbH and at the shareholder

So the transfer of the subsidiary GmbH is taxable before the expiry of the deadline for the parent GmbH, because the hidden reserves are uncovered. But what are the hidden reserves? The only assets of the subsidiary GmbH are the money transferred to them by the parent GmbH when it was founded. But money alone usually does not contain hidden reserves. Thus, the control is eliminated when the subsidiary GmbH is split off, because there is no controllable substrate.

On the other hand, § 15 paragraph 2 UmwStG affects only Mutter-GmbH. The shareholder of Mutter-GmbH, on the other hand, is by no means affected by the restriction imposed by the three-year period. For him, the separation will in any case remain tax neutral.