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Tax-neutral transfers between affiliated partnerships

Section 6(5) sentence 3 of the Income Tax Act (Einkommenssteuergesetz, EStG) legally specifies that in the case of the transfer of an asset between partnerships that are identical in terms of participation the hidden reserves would have to be realised. The Federal Constitutional Court (Bundesverfas­sungsgericht, BVerfG) recently concluded that this provision is not compatible with the Basic Law.


According to Section 6(5) sentence 3 EStG, assets may be transferred at the carrying amount between different asset areas of certain partnerships (in particular, between total business assets and special business assets as well as between the special business assets of different partners) without payment or in exchange for maintaining or reducing company membership rights without hidden reserves having to be realised.

However, the transfer of an asset at its carrying value from the joint assets of a partnership to the joint assets of another such partnership in which the partners hold the same proportion of interests (partnerships that are identical in terms of participation) has hitherto been precluded.

Issue – Selling at the carrying amount to the affiliated partnership

In a dispute that was ultimately referred to the BVerfG, a GmbH & Co. KG [a German limited partnership with a limited liability company as a general partner] that operated commercially had sold two developed plots of land from its joint assets to an affiliated partnership that was identical in terms of participation at a purchase price that corresponded to the carrying values shown in the balance sheet. The selling company treated the transfer as not having an impact on income for tax purposes, whereas the local tax office argued that the sale had resulted in the full disclosure of hidden reserves. 

The Baden-Wuerttemberg tax court, in its judgement of 19.7.2012 (case reference: 13 K 1988/09) ruled in favour of the claimants. In the opinion of the judges, it is possible to transfer an asset at its carrying value from the joint assets of a partnership to an affiliated partnership that is identical in terms of participation in accordance with Section 6(5) EStG. The Federal Fiscal Court suspended the appeal proceedings that had commenced on the initiative of the local tax office and referred the matter to the BVerfG.

Decision of the BVerfG

In its ruling of 28.11.2023 (case reference: 2 BvL 8/13) the BVerfG decided that the provision in sentence 3 of Section 6(5) EStG is not compatible with the Basic Law insofar as this clause precludes transfers at carrying values between partnerships that are identical in terms of participation, in particular, between  affiliated partnerships.

The BVerfG even obliged lawmakers to put in place a new provision that would apply retroactively to transfers made after 31.12.2000 (!). Following the decision of the BVerfG, until such a new provision comes into force Section 6(5) sentence 3 EStG shall apply on the understanding that the provision will also be valid for transfers of assets between partnerships that are identical in terms of participation.

Recommendation: For ongoing cases, it would therefore be advisable to obtain the relevant changes to assessment notices without realising hidden reserves by making reference to the decision of the BVerfG.

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