The anticipated succession via so-called "cash GmbHs" is about to end. When cash is to be transferred from one generation to the next, a distinction is made between business assets and private assets. The tax treatment differs significantly: A cash gift from private assets is subject in principle to 100% gift tax, with no statutory relief (apart from the personal exemption). A gift of GmbH shares, by contrast, would result in zero tax burden, provided the GmbH's assets consist exclusively of cash (= "cash GmbH"). This structure enables a tax-free transfer of assets, since cash does not count as harmful administrative assets. It should be noted that the BFH (5.10.11, II R 9/11), in an order joining further parties, expressed constitutional concerns regarding the current version of §§ 13a and 13b ErbStG and pointed out structuring models used in practice. A revised version was, and still is, planned. Under the revised § 13b Abs. 2 S. 2 Nr. 4 ErbStG-E, cash, demand deposits, bank balances and other receivables (but not receivables from actual business operations) are to be classified in future as harmful administrative assets to the extent they exceed 10% of the enterprise value (statement of the Bundesrat on the draft of the JStG 2013). In this statement, the Bundesrat apparently assumes that "cash GmbHs" must be recognised under current law. The bill was originally intended to enter into force on the date of its adoption by the German Bundestag on 26 October 2012, and to apply already to acquisitions for which the tax arises after the date of the legislative resolution. However, after the matter became public, the bill was withdrawn for the time being. At present, the previous law continues to apply unchanged. The extent to which a new regulation may be introduced via the Annual Tax Act 2013 (Jahressteuergesetz 2013) remains open. On 23 November 2012, the matter will be discussed again in the Bundesrat. Please contact us without fail if you are planning an anticipated succession. Excellent structuring options are still available. Follow the current developments on this topic here and watch the outcome… 16.08.2013: Info 12.04.2013: Info
Frequently asked questions
Frequently asked questions
What is a Cash-GmbH in the context of anticipated succession?
A Cash-GmbH is a GmbH whose assets consist exclusively or predominantly of cash holdings, sight deposits, and bank balances. It was used to transfer cash to the next generation free of gift tax, because cash was previously not classified as tax-detrimental administrative assets within the meaning of §§ 13a, 13b ErbStG. This allowed the relief provisions for business assets to be applied and the gift tax burden to be reduced to zero.
How does gift tax differ for cash assets held privately versus in business assets?
When cash is gifted from private assets, full gift tax generally applies; only the personal allowance reduces the taxable base. If, however, the cash is held within a GmbH and the GmbH shares are gifted, the relief provisions for business assets can reduce the tax burden to zero. This unequal treatment was the reason for the planned legislative amendment.
What new rule on administrative assets was planned in the JStG 2013?
Under the proposed § 13b Abs. 2 S. 2 Nr. 4 ErbStG-E, cash, sight deposits, bank balances, and other receivables were to be classified as harmful administrative assets to the extent they exceed 10% of the company's value. Receivables arising from actual operating business activities were to be excluded. As a result, the tax-free transfer of pure cash GmbHs would effectively have been ruled out.
What constitutional concerns has the BFH raised regarding §§ 13a, 13b ErbStG?
In its joinder order of 5 October 2011 (II R 9/11), the BFH expressed constitutional doubts about the current relief for business assets, pointing to structuring arrangements used in practice such as the Cash-GmbH. These concerns were a key impetus for the planned revision of the relief provisions in the ErbStG.
Is the Cash-GmbH structure still valid under current law?
The draft legislation restricting the Cash-GmbH was initially withdrawn, so existing law continues to apply unchanged. New rules under the 2013 Annual Tax Act remain possible but unresolved. Anyone planning an anticipated succession should monitor developments closely, as existing structuring opportunities could be eliminated at short notice.