Exemption from inheritance tax also in the event of the transfer of a share subject to a condition precedent

Business succession is one of the most complex legal issues because, in addition to aspects of inheritance, family and company law, tax law also plays a major role. In the past, the lack of coordination between estates and income tax has given rise to many difficult legal issues and conflicts of interest. This is why, in 2009, the legislator tried to resolve this conflict by a wide general exemption of business assets subject to inheritance tax by valuing certain businesses and company participations at their fair market value (called joint value for inheritance tax purposes in Article 9 Bewertungsgesetz – BewG) and exempting them from inheritance tax under sec. 13a, 13b Erbschaftsteuergesetz (ErbStG). However, this leads to constitutional problems (cf. Bundesverfassungsgericht (BVerfG), 17 December 2014 – 1 BvL 21/12), so that comprehensive amendments were necessary, especially in sec. 13a, 13b ErbStG. Since then, the value of business assets, agricultural and forestry assets as well as shares in companies within the meaning of Art. 13 b (4) the ErbStG is not taken into account, so that 85% of the tax-relieved company assets remain tax-free if the company is continued for five years (so-called reduction exemption). The remaining 15% is classified as non-productive and therefore not eligible for tax relief.

Until now, it was not clear when the separate determination of the value of the share of business assets should be made if the shares of a partnership (in particular a limited partnership (KG ) and a GmbH & Co. KG) are transferred without consideration but subject to a condition precedent. The Federal Tax Court (Bundesfinanzhof – BFH) answered this question in its decision of September 1, 2021 – II R 8/19, which has just been published, and clarified that the decisive factor for the moment of execution in tax law is the moment when the transfer of the right of affiliation under civil law comes into force. However, if the execution of the gift is subject to a condition precedent, the gift is not executed until the occurrence of this condition, which is why a determination of the value must be made at this time.

In practice, participations in partnerships are often transferred subject to a condition precedent, in particular the registration of the participation as limited partner in the commercial register, which is why the donation can also only become effective at the occurrence of this condition. Therefore, the separate determination of the value must be made on the day when the execution of the gift takes place. The particular importance of the BFH judgment now appears above all in cases where, in addition to the participation in a general partnership under company law, assets must also be transferred which, from a tax point of view, form part of the special assets of the company the respective partner (co-entrepreneur). For this additional transfer of special business assets to qualify for tax relief under sec. 13 a, 13 b ErbStG, these assets must be transferred to the beneficiary together with the participation according to company law. According to the BFH decree of June 17, 2020 – II R 38/17, tax relief is excluded in the event of the isolated transfer of special goodwill.

Therefore, the tax benefit for the free transfer of the participation in a partnership, including the transferred special goodwill, also requires that the participation under company law and the special goodwill be transferred to the beneficiary. at the same time. In this respect, the assessment is based exclusively on the principles of civil law. If the transfer of the participation in the general partnership is subject to a condition precedent, appropriate measures must be taken so that the special goodwill is also transferred to the beneficiary only on the occurrence of this condition.

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