On 13 May 2009, the BFH published a current ruling on the question of when goodwill is transferred (in a profit-realising manner) (case reference X R 32/05). On this topic, Wirtschaft aktuell, the magazine of Wirtschaftsförderung Borken, asked Christian Büker — one of our transaction specialists and also a Steuerberater (German Certified Tax Advisor), Master of Mediation and managing director within our group of companies — to write an article. Gladly. Here is an interim status: "[…] in addition to income tax issues, there is also the problem that, in the amount of the goodwill, a gift by the proprietor of the sole proprietorship (for example, the father) could be assumed, and on the basis of more recent case law this could not be assumed to be made to the shareholder of the 'receiving' GmbH (for example, the son); rather, the corresponding gift would have to be deemed to be made by the father to the GmbH. This would have the consequence that the GmbH only has insignificant allowances and that very high tax rates would apply (tax class III, 30 percent to 50 percent)." You can find Wirtschaft aktuell published by Wirtschaftsförderung Borken here on the internet. The article is available for download here. [wpfilebase tag=file id=28 /]
Frequently asked questions
Frequently asked questions
When does a profit-realizing transfer of goodwill occur under BFH ruling X R 32/05?
In its ruling of 13 May 2009 (Az. X R 32/05), the BFH determined the conditions under which goodwill is transferred in a profit-realizing manner. This is particularly relevant when transferring a sole proprietorship to a GmbH, as the goodwill must be disclosed and taxed in the process. The precise delineation has significant income tax consequences for the transferor.
What gift tax risk arises when transferring a sole proprietorship to a family-owned GmbH?
In addition to the income tax consequences, a gift may be deemed to have occurred in the amount of the goodwill. According to recent case law, however, this gift is not treated as a transfer to the shareholder (e.g., the son), but directly to the receiving GmbH. This leads to significantly disadvantageous gift tax consequences.
Why is a gift to a GmbH particularly disadvantageous from a tax perspective?
A GmbH receiving a gift is classified in tax class III and is granted only very limited allowances. The applicable tax rates range between 30 and 50 percent. This results in a significantly higher gift tax burden than a direct transfer to family members.
What should be considered when contributing a sole proprietorship to a GmbH?
Both income tax aspects (disclosure of goodwill) and gift tax risks should be carefully reviewed in the context of such a contribution. Particularly in transfers within the family, the potential assumption of a gift to the GmbH must be taken into account. Forward-looking planning with professional tax advice is therefore essential.