In a recently published decision (case reference: IX R 23/10), the Federal Tax Court (BFH) had the opportunity to rule on the concept of beneficial ownership in shares.
In the case, the plaintiff had acquired by a notarial deed dated 16 July 1999 a participation of 12.6 % in a GmbH. The deed also provided for a shareholders’ meeting to be held where the shareholders agreed to resolve on a capital increase, as a result of which the plaintiff’s participation decreased to 0.0208 %. Once the capital increase was resolved, the deed was signed by the plaintiff and certified by the notary public. In August 2000, the plaintiff sold its participation.
The tax authorities took the position that the plaintiff had acquired – even if it was just for a moment – a stake of 10 % or more, leading to taxable capital gains upon the sale in 2000.
The BFH disagreed with the tax authorities, concluding that, for the 10 % threshold to be met, the taxpayer had to become the beneficial owner of the shares. The transfer of beneficial ownership required the transfer of the power to effectively exercise all substantial (i.e. property, administrative and voting) rights resulting from the shares. Further, the economic intent and the actual transaction carried out are determinative for beneficial ownership purposes if this deviates from what was formally agreed upon by the parties. The BFH therefore held that the plaintiff did not intend to acquire a 12.6 % shareholding, but only the 0.0208% shareholding it held after the capital increase, so that capital gains from the sale of the shareholding should have been exempt from tax.
While transfer of beneficial ownership cases generally are very fact specific, the BFH decision indicates that the court may look more closely at the intention of the parties from an economic perspective. Taxpayers should be aware of this possibility, particularly in situations in which ownership in shareholdings passes only very briefly from one shareholder to the other, because the tax authorities/BFH may deny the transfer of beneficial ownership based on the principles in this decision.
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