BFH rules on gift tax consequences of share capital increases

The Federal Tax Court has held that an increase of a corporation’s share capital is subject to gift tax if the premium to be paid by the new shareholder does not reflect the fair market value of the newly issued shares.

Germany’s Federal Tax Court (BFH) issued a decision on August 27, 2014 in which it held that an increase of a corporation’s share capital is subject to gift tax if the premium to be paid by the new shareholder does not reflect the fair market value (FMV) of the newly issued shares (II R 43/12).

The case involved a GmbH that increased its share capital by issuing shares to a new shareholder. The premium to be paid by the new shareholder—a newly founded corporation— was considerably below the FMV of the new shares. The companies involved in the transaction were ultimately wholly owned by related individuals.

The tax authorities assessed gift tax based on the difference between the FMV of the newly issued shares and the amount the new shareholder had to pay and on the relationship between the former shareholder (the donor) and the new shareholder (the recipient) on the grounds that the share capital increase resulted in a value shift to the benefit of the new shareholder.

The taxpayer appealed the assessment, arguing that value shifts between corporations generally cannot be subject to gift tax if the value shifts are concurrently qualified as deemed dividend distributions for income tax purposes.

The BFH disagreed and held that the value shift from the former shareholder to the new shareholder resulting from the share capital increase is subject to gift tax.

The decision is an example of the ongoing focus of the German tax authorities on value shifts among group companies for gift tax purposes. Taking into account amendments to the Gift Tax Act that were enacted in 2011, careful structuring is necessary to mitigate any gift tax consequences of corporate restructurings that include non-arm’s length transactions.

Fundstelle

BFH, Urteil vom 27.08.2014 - II R 43/12

Contacts

Norbert Miethe

nmiethe@deloitte.de
Tel.: +49 21187723631

Dr. Leonid Korezkij

lkorezkij@deloitte.de
Tel.: +49 21187723889