Intercompany Privilege for Qualified Share Swaps During the Year

Section 9 no. 2a of the German Trade Tax Act provides for a reduction of the shareholder’s trade income by profits from shares in a non-exempt domestic corporation from a minimum shareholding of 15 % at the beginning of the tax period (so-called intercompany privilege) if the shares are allocated to the business. There is a strict cut-off date principle, i.e. subsequent changes are generally irrelevant. In principle, the cut-off date principle must also be observed for reorganization transactions, depending on the circumstances of the acquiring legal entity, even if the requirements have been met by the shareholder of the transferring legal entity. Against this background, in its ruling of November 24, 2022, case no. 14 K 392/22, the Tax Court Düsseldorf had to assess the scope of application of the trade tax intercompany privilege in the case of a so-called qualified share swap during the year.

The complex shareholding structure in the case in dispute was only relevant for the decision to the extent that one shareholder held a 100 % share in each of two GmbHs (A- and B-GmbH). The A-GmbH decided to increase its share capital in the current financial year. This was to take place by way of a qualified share swap in which the (sole) previous shareholder, as the transferee of the new shareholding, contributed the shareholding in B-GmbH held by him to A-GmbH at book value with immediate effect. The A-GmbH, which now held 100 % of the shares in the B-GmbH, then received a profit distribution from the B-GmbH. The tax office refused to reduce the resulting increase in trade income at A-GmbH because the shareholding in B-GmbH had not already amounted to at least 15 % at the beginning of the tax period and therefore the requirements for the trade tax intercompany privilege were not met.

The Tax Court Düsseldorf took a different view. It is correct that the cut-off date principle applies in the present case for the purposes of the intercompany privilege; it is therefore mandatory to refer to the beginning of the tax period. However, in the event of a qualified share swap - as was the case here - the acquiring company, in this case A-GmbH, assumes the legal status for tax purposes of the transferring company, in this case B-GmbH. Therefore, the previous periods of ownership of the legal predecessor in the shareholding must also be attributed to the acquiring company in accordance with the provisions of the German Reorganization Tax Act (section 12 para. 3 UmwStG).