Corporate tax consulting practice

Initial case: no services for consideration - nevertheless controlling company

In this case, a GmbH had transferred its subsidiaries to a newly founded limited partnership (KG) as part of a restructuring. This KG also took over the profit and loss transfer agreement with a controlled company. Although the KG did not have any employees and did not provide any classic intra-group services, the corporation tax return was submitted on the assumption that the tax group continued to exist.

The tax office refused to recognize the tax group. In the opinion of the tax authorities, there is no participation in general economic transactions without the provision of paid services. Accordingly, reference was made to the BMF letter dated 10.11.2005.

BFH: Active management is sufficient for commercial activity

Both the Nuremberg tax court and the BFH disagreed with this restrictive view. The decisive factor was the actual exercise of entrepreneurial management. The KG had exerted a planned influence on the management of the subsidiary. This was evidenced, among other things, by minutes of regular management meetings in which specific operational measures were discussed.

The BFH clarifies that no services for consideration to subsidiaries are required as long as the holding company actively intervenes in the management of the company. However, the mere holding of participations is not sufficient.

Significance of the ruling for practice

The ruling strengthens the tax recognition of managing holding partnerships as tax group parent companies. For existing tax group structures, this means that anyone who actively exerts documented influence fulfills the requirements for a commercial activity even without a service agreement.

It remains to be seen whether at least two shareholdings are required to qualify as a tax group parent or whether one shareholding is sufficient. Written documentation of the management activities remains essential in any case.

Classification in the international context

The ruling relates to the year 2008. From 2012 onwards, it is also required that shareholdings in governing bodies are allocated to a domestic permanent establishment (section 14 para. 1 sentence 1 no. 2 sentences 4-6 KStG). The BFH has not decided whether the activity described in the ruling is sufficient for this allocation.

Relevance for departure cases

The contribution of shares in a corporation to a commercial limited partnership is a common means of avoiding the disclosure of hidden reserves on departure. Whether the activities of the KG described here are sufficient to establish a domestic permanent establishment remains unclear. Taxpayers should continue to adhere to the requirements of the tax authorities.

Current advice - briefly noted

Cologne tax court, judgment of 30.01.2025 - 10 K 101/21: Expenses for incentive trips and shopping vouchers for insurance brokers are deductible business expenses

The operating expenses for incentive trips and shopping vouchers incurred as part of a sales competition are fully deductible as non-cash commission in accordance with Section 8 (1) sentence 1 KStG in conjunction with Section 4 (4) EStG. In the case at hand, these services were agreed between the parties in advance as additional remuneration as part of a sales competition. The prohibitions on deduction set out by the tax authorities in Section 4 (5) sentence 1 no. 1, no. 2 and no. 4 EStG do not apply: This is because the services received have a direct economic and temporal connection to the brokering of sales revenue. They therefore correspond to an exchange of services. The decision is legally binding. However, it is to be expected that the tax authorities will classify the benefits received by insurance brokers as taxable income.

Brief notes

Deduction of foreign taxes in the tax group under trade tax law (BFH of October 16, 2024, file number I R 16/20)

An isolated trade tax deduction of foreign withholding taxes is not possible if free float dividends are exempt from corporation tax. 

New BMF circular on the preferential treatment of profits not withdrawn in accordance with Section 34a EStG 

On 12 March 2025, the Federal Ministry of Finance, in agreement with the supreme tax authorities of the federal states, published a letter of application on the income tax relief for profits not withdrawn from partnerships and specifies key points. It replaces the old BMF letter dated August 11, 2008 and is to be applied from the 2024 assessment period.

Bonus payments to the minority shareholder as hidden profit distributions? (BFH of October 24, 2024, file number I R 36/22)

A remuneration agreement between a stock corporation and a Management Board member who is also a minority shareholder of the stock corporation only leads to a concealed profit distribution if the circumstances of the individual case clearly indicate that the Supervisory Board has unilaterally aligned itself with the interests of the Management Board member in the remuneration agreement.

BFH ruling from 27.11.2024 - I R 19/21: Tax treatment of a shareholder loan granted to an asset-managing partnership 

A shareholder loan granted to an asset-managing partnership is not recognized for tax purposes. This applies if

• the company's loan liability is attributable to its shareholder for tax purposes in accordance with Section 39 (2) no. 2 of the German Fiscal Code, and
• the necessary personal difference between creditor and debtor is lacking for recognition under tax law (BFH rulings of 18.05.2004 - IX R 42/01, BFH of 07.06.2006 - IX R 14/04). 

To this extent, the loan relationship does not result in deductible income-related expenses for the borrower or income from capital assets for the lender. It is to be treated as a tax-neutral contribution.

This article was written by our experts Karin Deuringer, Michael Faulhaber and Daniel Reichert.