Federal Fiscal Court rules on gift tax and property transfer tax conflict

The Federal Fiscal Court (BFH) has issued a ruling (Az. II R 11/24) addressing a complex tax scenario involving the interplay between gift tax and property transfer tax. The decision clarifies how selling a property to a company at an inflated price, especially when the seller is close to a shareholder, can trigger unexpected tax consequences.

The case involved a property sold to a limited liability company (GmbH) for EUR 1.1 million. The seller was the life partner of the company's sole shareholder and managing director. Property transfer tax was assessed based on this purchase price.

Subsequently, tax authorities alleged the price was excessive, leading to a tax evasion investigation. The court determined the property's actual value was at most EUR 480,000, and the excess amount was deemed a hidden profit distribution. This resulted in a gift tax assessment of EUR 175,590 levied against the seller.

However, the BFH rejected the company's request to amend the property transfer tax assessment. The court affirmed a general principle that property transfer tax and gift tax typically exclude each other for the same transaction. In this instance, the gift tax pertained to the hidden profit distribution, while the property transfer tax was based on the agreed-upon purchase price as consideration for the acquisition.

The ruling emphasizes the importance of clearly distinguishing between different asset levels, particularly in closely held companies. Taxpayers should ensure all asset transfers are disclosed from the outset to avoid unintended tax liabilities.