Tax-Exempt Sale of a German Corporation per BFH Ruling of May 31, 2017

A tax-exempt sale of a German corporation is a crucial topic affecting both businesses and investors. On May 31, 2017, the German Federal Fiscal Court (Bundesfinanzhof or BFH) issued a groundbreaking ruling that holds significant implications for tax practices in Germany. Accordint to the BFH, a tax-exempt sale of a German Corporation can even be possible when no double tax treaty is applicable. This means that foreign investors can even be treated better than German investors, who in comparable situations pay about 1.5% in taxes on the capital gain.

The BFH Ruling of May 31, 2017

The BFH ruling of May 31, 2017 (Case Number: I R 37/15) revolved around the question of the tax exemption for the sale of shares in a German corporation. The ruling stipulated that, under certain conditions, the sale of shares in a corporation can be exempt from taxation, provided specific criteria are met.

This ruling holds significant tax implications for companies undergoing a sales process. The speciality of the case was that no double taxation treaty existed which could allocate the taxation rights to the state of residency. Nevertheless, the sale was not taxable in Germany.

Implications on structuring

The BFH’s May 31, 2017 ruling opens up the possibility for companies to benefit from the tax-exempt sale of German corporate shares. This option can be appealing for divesting parts of a company or restructuring corporate holdings. However, it is crucial to carefully review and fulfill the specific conditions and criteria outlined in the ruling to ensure tax exemption. Especially, the sellers requires a certain ‚economic substance‘.

The tax advisors at GHS can assist businesses in understanding the prerequisites of the ruling and taking appropriate actions. From analyzing corporate structures to guiding the implementation of tax-exempt sales, GHS experts provide comprehensive insights and guidance.

Advantages of a Tax-Exempt Sale

The potential for a tax-exempt sale of corporate shares as per the BFH ruling offers several significant advantages for businesses:

Tax Relief: Tax-exempt share sales can alleviate substantial tax burdens, leading to an improved financial position for the company.

Strategic Flexibility: Companies have the opportunity to adjust their corporate structure by divesting holdings without the fear of incurring tax liabilities.

Investor Attraction: A tax-exempt sale can attract potential investors and enhance the company’s negotiation position.

Boosting Business Activities: Tax savings can be reinvested into core business operations, fostering growth and development.

The Role of GHS Tax Advisors

The M&A tax experts at GHS possess an in-depth understanding of German tax laws and regulations. With extensive experience advising companies on tax matters, they can assist you in navigating the intricacies of ensuring a tax-exempt sale of your corporation.

GHS services include:

Comprehensive Consultation: GHS tax advisors will analyze your unique situation and offer tailored solutions to meet the conditions of the BFH ruling.

Structuring and Planning: GHS helps optimize the sales process structure to ensure tax exemption while aligning with your business goals.

Documentation and Compliance: Experts assist in preparing necessary documentation and ensuring adherence to all tax regulations.

Negotiations and Implementation: GHS supports you throughout negotiations and guides the implementation of the sales process.

Structure your business to benefit from the tax-exemption

The groundbreaking BFH ruling of May 31, 2017 provides businesses and investors with the opportunity to benefit from tax-exempt sales of German corporate shares even without a double taxation treaty in place. The GHS experts are here to ensure you capitalize on the advantages presented by this ruling. With their extensive experience and profound expertise, they are the ideal partners to navigate you through the intricate process of achieving a tax-exempt sale. Contact GHS today to strategically plan your tax success in accordance with the 2017 BFH ruling.