German Court Rules on Negative Acquisition Costs in Business Transfers

A recent ruling by Germany's Federal Fiscal Court (Bundesfinanzhof) has altered the tax treatment of business transfers to corporations. Previously, tax authorities treated excess withdrawals made by the transferor after the business assets were moved, but before the transfer was legally finalized, as a taxable gain realized at the time of transfer.

The court's decision in March 2018, however, determined that such "excess withdrawals" during a retroactive period (up to eight months prior to the legal transfer) can lead to negative acquisition costs for the shares received by the transferor. This means any taxable gain is deferred until the shares are eventually sold.

While the ruling pertains to an older version of the relevant tax law, its principles are expected to apply under current legislation. The tax authorities' response to this taxpayer-favorable interpretation is yet to be seen. Affected individuals are advised to keep relevant tax assessments open.

Notably, the acquiring corporation cannot appeal this decision as it benefits from the interpretation through potentially higher depreciation allowances. The responsibility for appeal lies with the original transferor.