Federal Constitutional Court upholds tax on sale of partnership interests

Germany's Federal Constitutional Court has ruled on the taxation of gains arising from the sale of partnership interests, a matter that had been brought before the court by a partnership.

The court rejected a constitutional complaint, finding that the levying of trade tax on profits from the disposal of partnership interests does not violate the principle of ability to pay. The decision explained that the resulting tax burden on the partnership can be offset by increased depreciation for the incoming partner. Furthermore, the distribution of the tax liability can be addressed through contractual arrangements.

The court also stated that the legislature's decision to favor profits attributable to directly participating individuals falls within its broad discretionary powers. The aim was to prevent tax avoidance strategies, which justified the differential treatment of various legal forms.

The ruling underscores the importance of careful tax planning when disposing of partnership interests. Both the tax liability and the amount of tax require meticulous consideration, for instance, through contractual clauses or the timing of the transaction.