The local tax court of Rheinland-Pfalz recently ruled on a case involving the general anti-abuse provision in connection with share transfers (case reference 4 k 1078/05). The shareholders of a limited liability company (GmbH) had exchanged their shareholdings, the value of which had been impaired shortly before the year-end of 2001 in a cross-sales transaction, in order to use 100% of the loss realized in the transaction in their personal income tax declaration. The relevant tax law was amended with effect from 1 January 2002 so that under the new rule only 50% (now 60%) of a loss realized from the sale of shares could be used for personal income tax purposes.
The local tax court based its decision on the fact that the same seven shareholders were holding shares in the GmbH at the same percentage (14.29%) both before and after the transaction and none of the shareholders wanted to finally dispose of his shareholding in the company. The tax court did not see any economic or other considerable non-tax reasons for the transaction which could be used as a justification in favor of the taxpayers. The court rejected the taxpayers’ argument that making use of a favorable tax provision even shortly before it is amended/abolished does not constitute an abuse of law. The case is now pending before the BFH.
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