Business split-up
A business split is a tax structure in which a company is split up into two or more legally independent units, whereby the units involved remain tied to one another in terms of personnel and economics ( BFH decision of November 8, 1971 GrS 2/71, BStBl II 1972, 63) . The division of operations is not expressly defined in the tax laws, but was developed through the case law of the BFH. The basic case law results from the income tax guidelines R 15.7 (4) to R 15.7 (8). The purpose of the split-up is the full income and trade tax recording of objects (business assets, tax entanglement ) and income. This is achieved by re-qualifying income from renting and leasing as income from commercial operations . There are no constitutional concerns.
requirements
A business split occurs when a company leaves an essential operating basis to a commercially active partnership or corporation for use and the company controls the other company. What is required is a factual integration (transfer of the essential operating basis) and a personal integration (mostly: majority of the voting rights in the partnership or corporation). If only one of the two conditions is met (e.g. the taxpayer leases his property to a corporation, but does not hold a stake in the company himself), it is not a business split.
Definition of factual integration
A factual interdependence exists when the holding company leaves an essential operating basis to the operating company. It is not necessary that the company owns the thing; it can also lease it itself and sublet it to the operating company.
It is difficult to determine what exactly is an essential operating basis, but principles have emerged in the case law of the Federal Fiscal Court. For example, an office building forms an essential operating basis if business is conducted from there. Manufacturing land, patents and rights to the name of the company ( company ) are always to be regarded as an essential operating basis. The substitutability of an asset does not exclude the existence of an essential operating basis.
When classifying the asset, the quantitative value is not important, only the function is decisive. Substantial hidden reserves contained in the asset are not sufficient to classify an asset as an essential operating basis.
Definition of personal integration
A personal interdependence exists when the people behind the two companies have a uniform business activity. In most cases this requirement is met by the majority of the voting rights in the operating company. However, it is also possible that de facto control exists or that several people together control both companies.
Shares of spouses are generally not added together, unless community of property has been agreed. If one spouse is involved in the holding company and the other spouse is involved in the operating company, there is usually no business split. This constellation is called the Wiesbaden model .
Tax consequences of the business split
Single consequences
As soon as there is a split in the business, the holding company generates full commercial income. All assets of the holding company are to be included in the business assets. The lease that the company receives is reclassified from rental and lease income to commercial income. The holding company continues to establish its own trade tax liability. However, this regulation does not apply to communities of heirs, as these represent a coincidental community that has arisen through the death of the testator, and therefore no "targeted" division of the business was brought about. In this respect, a community of heirs only earns commercial income with regard to the transferred asset and can still generate other income (e.g. rental and leasing).
The shares in the company become necessary business assets of the holding company, and in the case of partnerships also become necessary special business assets. Since they serve the holding company in the long term, they are to be assigned to the holding company's fixed assets. Distributions by a corporation, which basically represent income from capital assets , are also reclassified as commercial income and taxed at 60% in the partial income method .
The profit from the property business subject - depending on the legal form of the property company - the income tax or corporate income tax and the business tax .
Remuneration that the leasing entrepreneur receives in addition to the lease (e.g. managing director's salary) are not to be included in the determination of profit, but are generally to be recorded as income from non-self-employed activity . Hidden profit distributions , for example a salary that is not customary, are participation income and taxable as income from commercial operations.
It has to be decided on a case-by-case basis whether the split is advantageous or disadvantageous. The trade tax liability of the business split is only disadvantageous in cities with a trade tax multiplier of over 380%, since the trade tax is credited to the income tax with a reduction in the solidarity surcharge (see § 35 Paragraph 1 Sentence 1 No. 1 and No. 2 EStG) . Since the withholding tax of 25% only applies to income from capital assets, the 60% taxation of the investment income from the business split with the personal tax rate can be disadvantageous. However, this is only the case from a standard tax rate of 42%. A business expense deduction is only i. H. v. 60% of the actual expenses are granted, as these are in connection with tax-free income, while with the application of the withholding tax, a business expense deduction is excluded.
Risk issue business split
As a result of legal transactions or changes in family or inheritance law or as a result of other legal arrangements, a business split can also take place or end without the will of those involved being specifically aimed at this. In the course of a tax audit or a more detailed examination of the legal relationships between the parties involved by the tax office, this issue is often only discovered after a long time - sometimes only when the business is closed - with serious income and trade tax consequences. With each initial or subsequent transfer of items of business assets, the effects on the tax classification of income with regard to the types of income and the tax entanglement of items in the operational sphere must therefore be carefully examined.
Establishment of a business split
In a real business split, an existing company is split into a holding company and an operating company ("split up"). A spurious business split occurs when two already existing companies are contractually interwoven, for example when the lessor who leased a property to a corporation later acquires the majority of the shares in this company. As soon as the two characteristics "factual interdependence" and "personal interdependence" are present, it is a question of a business split.
The tax law recording of the phenomenon of so-called " double companies " can already be proven for the period shortly after the First World War ; the commercial tax liability of the holding company was affirmed for the first time in 1942 by the Reichsfinanzhof with reference to participation in commercial transactions.
Differentiation with regard to the division of operational functions
- Structural business split:
owned company leases assets to operating company (operational) - Functional business split:
production and sales company - Classic business split:
owned partnership, operating corporation - Co-entrepreneurial business split:
owned partnership, operating partnership - Reverse business split:
owned corporation, operating partnership (participation not required, operating partnership must control owned corporation) - Capitalistic division of business:
owned corporation, operating corporation / partnership (controversial, direct participation of the property corporation in the operating company required)
Legal persons under public law
If a corporation under public law (sponsoring body) leaves its business assets of a commercial nature , which represent the essential operating principles, the principles established for the division of the business are to be used.
End of a business split
Conversely, the business split ceases to exist as soon as one of the two characteristics (factual / personal interrelationship) no longer exists, for example if the lessor of the essential operating basis sells his shares in the company (elimination of personal interrelationship) or if he ceases leasing (elimination of the factual integration). Often the business split ceases to exist even with the death of the owner, if, upon death, the shares in the company go to someone other than the person to whom the leased property is to be paid.
The termination of the business split can mean that the taxpayer has the right to choose a lessor. For this, however, all essential operating bases would have to be leased to the previous operating company. In the case of a business lease, the assets remain in the business assets until the business end is declared. A business lease is not subject to trade tax. When the business is closed, all hidden reserves (the difference between the fair value and the book value ) must be disclosed and taxed. In the absence of leasing of all essential operating bases, operations are immediately closed.
Individual evidence
- ↑ Section 50i (1) sentence 4 EStG (until July 30, 2014, Section 50i sentence 3 EStG) now contains the definition of the division of operations, but without using the term.
- ^ Frank Roser, Tax principles of (partial) tax arrest and dismissal Finanzrundschau 2011, pp. 1126–1138
- ↑ BVerfG v. January 13, 1995, 1 BvR 1946/94, in: HFR 1995, 223; BVerfG v. March 12, 1985, 1 BvR 571/81, 494/82, 47/83, in: BVerfGE 69, 188; BVerfG v. January 14, 1969, 1 BvR 136/62, in: BStBl II 1969, 389
- ↑ Annemarie Butz-Seidl, Opportunities and Risks of a Business Splitting in the Light of the Corporate Tax Reform, Gestende Steuerberatung 07/2007, page 240
