A recently published decision of the German Federal Tax Court (BFH) addresses the application of the general anti-abuse rule (GAAR) in connection with the sale and acquisition of shares in corporations (case reference: IX R 40/09).
In the case decided by the BFH, several individuals had sold their 14.29% interest in a GmbH to other shareholders of the same GmbH. On the same day, the sellers also purchased shares representing the same shareholding percentages they had held before the sale. By mutually selling and buying the shares, the shareholders aimed to realize tax deductible capital losses. The tax authorities and the local tax court viewed the transactions as abusive and disallowed deductions for the tax losses due to an application of the GAAR.
The BFH disagreed and confirmed the taxpayers’ position. According to the BFH, the taxpayers were free to sell their GmbH shares whenever and to whomever they wished. Since the use of the tax losses is in line with the German Income Tax Act and no restriction on the utilization of tax losses applied, the tax losses incurred on the sale of the shares had to be allowed. The mutual sale and acquisition of GmbH shares was not held to fall under the GAAR because a capital gain or loss derived from a later sale of the newly acquired shares would be based on the lower acquisition costs of those shares.
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