The valuation of shares in a cooperative can be approached in two ways. On the one hand, you can set them with the nominal value that you originally inserted as a member of the cooperative in order to become a member. After all, this also corresponds to the credit you get back when you leave the cooperative. On the other hand, one must also comply with the legal requirement for the approach of objective, i.e. economic, standards in the evaluation of shares in a cooperative. The current profits actually achieved through membership of the cooperative are in the foreground of the valuation of the shares.

But it depends in detail on what the valuation of the shares in a cooperative should serve. On the one hand, one can assume situations in which the transfer of shares in a cooperative in the context of a donation or inheritance requires an evaluation. On the other hand, the departure of a member of the cooperative who was previously taxable in Germany abroad may also give rise to the evaluation of his shares in the cooperative. At least in this respect, there is the possibility that a tax-advantageous valuation of the shares in a cooperative can be considered. However, it is generally the case when evaluating the shares in a cooperative that neither precisely defined legal norms nor court-relevant judgments guarantee a final clarification.

What is a cooperative? Establishment, taxes, benefits, evaluation

Valuation of shares in a cooperative – Introduction

As a form of enterprise, the cooperative has some peculiarities that make it close to both a corporation and a registered association. For example, membership in a cooperative is based on payment of a membership share. This basically corresponds to a deposit. A comparable payment takes place, for example, with a corporation. In that case, the contribution is accompanied by the acquisition of shares which include voting rights.

On the other hand, an increase in the value of the share in a cooperative is excluded in principle. For no matter how much the value of the cooperative may increase, if a member of the cooperative leaves, he is only entitled to a payment of his balance in the amount of his original deposit. Thus, the survival of the cooperative is under a certain financial protection. At least in comparison to a GmbH, this usually affects the financial basis of the company much less.

So we come close to the topic of our present contribution. This time we want to focus on the evaluation of shares in a cooperative. However, in order to clarify whether the valuation of the shares in a cooperative is regulated under civil law or other requirements, we first take a look at the general legal situation regarding cooperatives.

2nd General legal situation concerning cooperatives

The cooperative is enshrined in civil law in its legal form by the Cooperative Act (GenG). There you will find the most important paragraphs, for example, to establish, lead or terminate a cooperative. But when it comes to tax aspects of the cooperative, it has to be noted that the legislature only considered the basic taxation of cooperatives in legislation. Although there are norms for many situations in which tax-relevant topics such as inheritance tax and gift tax are in the foreground, the cooperative is an exception. This is also the case when it comes to the valuation of shares in a cooperative. Therefore, it must be noted that there are no legal regulations that explicitly determine the valuation of shares in cooperatives.

Now you may ask whether, in the absence of clear rules, you can simply determine for yourself how to deal with such a situation. After all, no law is contrary to one’s own desire in this regard. But then may the financial administration always be of the same opinion? Hardly at all. The result would then be that a court with a judgment must bring about a clarification. However, due to the fact that cooperatives always represented a marginal phenomenon in the German business landscape in the past, hardly any negotiations on such legally unregulated tax aspects took place before the tax courts or even before the Bundesfinanzhof. In other words, the legal situation regarding certain tax aspects of the cooperative is unclear. And so it is with the valuation of shares in a cooperative.

When evaluating shares in a cooperative, we want to distinguish between two cases. This chapter deals with the valuation of shares in a cooperative in connection with a gift or inheritance.

3.1. Valuation of shares in a cooperative by nominal value

On the one hand, the valuation of the shares in a cooperative can be quantified by the value corresponding to the share of the cooperative member. After all, it is also determined in § 73 GenG. And in fact this corresponds to the opinion of many commentators, because § 12 (1) sentence 1 BewG also names the nominal value of the shares as decisive. However, one must also note the restriction contained in this sentence in its second part. There is talk of special circumstances that can justify a higher or lower value. But what exactly is meant by this remains open and can therefore be interpreted in any direction.

3.2. Valuation of shares according to the performance principle

Therefore, in cases where the tax administration assumes a higher value than the nominal value, it may apply different standards. This is based on the general principles of taxation. One of these is the performance principle. In general, the tax base must be regarded as taking into account, inter alia, the level of revenue. In addition, the tax administration can also refer to § 42 AO in such a case. With this law, the legislature has stipulated that even legally compliant interpretations must in principle not constitute a basis for a restriction of the taxation right. So in such a case, the performance principle applies.

What does this mean for the valuation of shares in a cooperative? As long as the application of the applicable legal norm does not constitute an abuse of design, § 12 BewG can be regarded as decisive. However, if a member of the cooperative transfers his share of a cooperative with a low nominal value by donation or inheritance, for which there have always been disproportionately high profit distributions in the past, their valuation should be based on the performance principle.

But whether this objective standard according to the economic performance without further legal flanking also holds in court is still open.

4. Evaluation of shares in a cooperative: Exit tax

Similarly, the situation can also be seen in connection with the departure of a member of the cooperative. Although the cooperative is not a limited liability company, the provisions in this regard also apply to it (§ 6 (1) sentence 1 AStG in conjunction with § 17 (7) EStG). After all, this is a logical conclusion, because the cooperative society is also treated as a capital company from a tax point of view.

Thus, the valuation of the shares in a cooperative is carried out either on a par value or on a pro rata basis based on the economic performance of the cooperative, i.e. its profit.

Now we want to use the previously gained knowledge to compare the valuation of the shares of a cooperative with other forms of company.

5.1. Estate tax

First of all, we turn our attention to the differences in the transfer of shares in these types of companies in inheritance tax and gift tax.

We can determine that in the case of inheritance or donation of shares in a partnership or corporation it is possible under certain conditions to transfer them tax-free (§§ 13a, 13b ErbStG). In addition, this even applies to the transfer of a sole proprietorship. But a tax advantage of shares in a cooperative is missing in the law. Thus, cooperative shares transferred by inheritance or donation are fully taxable.

As long as the value of the inherited or gifted cooperative shares is less than the allowance that the recipients can use, the transfer can take place without tax. However, if a taxable amount results, then other forms of company are potentially in a much better position than a cooperative. Whether this is intended by the legislature or is due to an unintentional neglect of the cooperative remains open.

At the latest, however, if a much higher value is applied in the valuation of the shares in a cooperative instead of the nominal value, the inheritance tax or gift tax is disadvantageous. At least in the context of a donation, this can still be compensated by a reserved usufruct.

5.2 Exit tax

The case of the exit tax is somewhat different. Because when a shareholder moves abroad, there is only a duty to tax unencumbered companies. However, we have already learned that a member of the cooperative is also included. But if only a relatively low nominal value can be used to evaluate the shares in a cooperative, then this is more tax-advantageous than if the evaluation criteria for GmbH shares apply. Because these depend on the annual profit multiplied by a factor of 13.5.

If a GmbH shareholder has no other alternatives available to avoid the exit tax, then he can at least consider the conversion of the GmbH into a cooperative as an option. The focus here is on trying to value the shares in the cooperative at a low nominal value if possible. With a little luck you can convince the tax office that this is quite appropriate. However, this attempt hardly has a significant disadvantage.

Exit taxation & tax easing | Interview

Conclusion on the evaluation of shares in a cooperative

Admittedly, the conclusion from our analysis on the valuation of shares in a cooperative is not very illuminating. Due to the fact that many details in the evaluation are hardly legally clear, the cooperative as a form of enterprise should really only be seen as an advantage when it comes to its core competences, namely the promotion of its members. As long as this specific advantage outweighs all the other disadvantages associated with a cooperative, the cooperative may have a justification. But the disadvantages can be considerable even when transferring the shares by way of a gift or inheritance.