The legal form of GmbH & Co. KG offers the option of a design model under tax law, with which the income tax consolidation of profits and losses of Komplementär-GmbH and GmbH & Co. KG can be achieved. This design variant, known as the “trust model”, has enjoyed great popularity in tax consulting practice since its supreme court recognition. In the meantime, the design of a trust KG has to be carried out in accordance with company law requirements. The following article deals in particular with these principles and explains the advantages of partnerships.

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1. The Trust Model & the Trust KG

The trust model is based on a partnership in the legal form of GmbH & Co. KG (= Treuhand-KG). As a partnership, a GmbH & Co. KG must necessarily consist of at least two partners. One of the partners is personally liable with his assets (complementary). As a general rule, the other shareholder is liable only for his contribution. Usually, the general partner GmbH of a GmbH & Co. KG serves only to assume personal liability in the limited partnership. It is therefore in most cases not involved in the assets of the limited partnership.

In contrast to the usual corporate law design of a GmbH & Co. KG, however, the personally liable general partner GmbH is to a large extent (e.g. 99%) in the assets of the trust model. The only limited partner receives the remaining part of the assets of the GmbH & Co. KG, but holds it as trustee for the General GmbH. For this purpose, Komplementär-GmbH and the limited partner conclude a trust agreement, which in particular stipulates that the limited partner holds the limited shares in the trust-KG for the general partner-GmbH (as trustor). Despite this trust agreement, however, the limited partner of GmbH & Co. KG remains under civil law. Thus, under civil law, two shareholders are still involved in GmbH & Co. KG. Therefore, under civil law, the trust agreement does not lead to the dissolution of the Trust-KG.

2nd Trust-KG: Tax Impact of the Trust Model

In tax law, the application of the trust model explained above has the effect that GmbH & Co. KG does not exist for income tax purposes. This is due to the fact that the limited partner as trustee generally does not bear any joint venture risk and no joint venture initiative within the meaning of § 15 EStG. Both co-entrepreneur risk and co-entrepreneur initiative therefore lie in principle with the trustee, as a result of which, according to tax assessment acc. Section 39 AO is usually attributed to economic property. However, within the framework of the trust model, the trustee is the general partner GmbH, which is already to be qualified as a co-contractor within the meaning of § 15 EStG. Thus, from a profit tax perspective, the Trust-KG has only one co-entrepreneur and therefore cannot be qualified as co-entrepreneurship within the meaning of § 15 EStG. According to supreme court case law and the opinion of the tax administration, this assessment applies not only to income tax but also to business tax.

This model allows profit-tax profits and losses of Komplementär-GmbH and Trust-KG to be offset against each other at the level of Komplementär-GmbH. The possibility of income tax consolidation offers the general partner GmbH, for example, the possibility to use the losses generated by the Trust-KG in the area of trade tax. Due to this impact, the trust model is sometimes also referred to as an “organization for partnerships”. Outside the scope of the escrow model, this type of loss offsetting is not possible. Insofar as GmbH & Co. KG is to be qualified as a co-entrepreneurship, it is itself a trade tax subject. An allocation of the losses of GmbH & Co. KG to the shareholders is inadmissible in this case. As a further advantage of the escrow model, it can be stated that a two-step profit determination (at the level of GmbH & Co. KG and at the level of the shareholders) is not necessary for such a escrow KG. Therefore, the preparation of special or supplementary balance sheets by the shareholders is obsolete.

Which advantages of a trust KG are relevant to you?

3rd contractual structure of the Trust KG

In order for the trust model to have the desired effect, it is necessary, as explained above, that the trust commander is not qualified as a co-contractor. The result of this assessment depends on whether the Trust Commander bears joint venture risk and/or joint venture initiative within the GmbH & Co. KG. This assessment shall take into account all relevant legal and economic circumstances. Therefore, the objective that the trust commander is not qualified as a co-entrepreneur within the meaning of § 15 EStG should be taken into account directly in the preparation of the necessary contracts. For example, the rights of the limited partner within the legally permissible framework can already be restricted in the social contract of the Trustee-KG. In addition, it is conceivable to link the partnership agreement of the Trustee-KG directly with the Trustee agreement between the Partner-GmbH and the Trustee-Kommanditisten. Furthermore, the fiduciary agreement itself can subject the fiduciary commanders to a comprehensive authority of instruction of the fiduciary (=Complementary GmbH) with regard to the exercise of company rights.

A variant of the Trust KG often used in the drafting of contracts consists, on the one hand, of the general shareholder GmbH which participates in the majority of the assets of the Trust KG. A subsidiary -GmbH founded by Komplementär-GmbH for this purpose is used as the second civil-law shareholder and trust-commander. The sole shareholder of this subsidiary GmbH is again the general shareholder GmbH of Treuhand GmbH. However, this variant represents only one example of the design of a trust model. Regardless of the specific design of the Trust-KG, it should be noted that (Treuhand-) GmbH & Co. KG always constitutes an independent and legally competent commercial partnership under civil law. Therefore, regardless of the respective tax treatment, it is subject to the commercial accounting obligation (see §§ 242 ff. HGB).

Benefits of the Trust KG – Our conclusion

Due to its tax implications, the Trust KG can be attractive for both existing and newly created companies, depending on the circumstances. It may also be considered as an alternative to an organ. However, the plausibility of using a trust model should be assessed separately for each issue. If implementation makes sense in a specific individual case, attention should be paid directly to the details of the necessary contract drafting in order to achieve the desired goals with the greatest possible certainty. Depending on the drafting of the contract and the implementation of the trust model, it is possible in principle that trust agreements effectively concluded under civil law do not achieve the desired recognition for tax purposes. However, if there is no tax recognition of the trust agreement, the economic property (§ 39 AO) remains in doubt with the trustee as civil owner of the limited partnership. This in turn increases the probability of qualifying the trustee as a co-entrepreneur within the meaning of § 15 EStG.

In order to achieve the greatest possible legal certainty from both company law and tax law perspective, our consultants are at your disposal for a first telephone or personal consultation.