Non-pro-rata contribution by a partner in a partnership – Beware of tax pitfalls!
For the purpose of acquiring a piece of real estate through a family-owned GmbH & Co. KG, in which both parents and their three children held interests as limited partners, contributions were made—however, only by the father, not by the other family members. The Federal Fiscal Court (BFH) viewed this as a taxable gift from the father to the mother and the children, since the father contributed assets to the KG’s corporate assets by way of a capital contribution without receiving any corresponding consideration, the amount of which exceeded the share owed based on his interest in the company, and this resulted in a transfer of assets mediated through the partnership between him and the other partners, whose share in the assets held through the partnership increased as a result of the contribution.
With this decision, the Federal Fiscal Court (BFH) aims to prevent such indirect transfers of assets, particularly between family members. At the same time, the legal situation for partnerships is being aligned with that of corporations, for which a gift tax liability in such cases has already been expressly stipulated in § 7(8) of the German Inheritance Tax Act (ErbStG).
The decision applies to all partnerships. The respective partners are personally liable for the applicable gift tax and are therefore required to report the gift transactions, which at least has the advantage that the tax bracket and the amount of the allowances are determined based on their personal circumstances relative to the donor.
A taxable gift can be avoided if the non-proportional contribution is not posted to a (jointly held) reserve account of the partnership but to a personal reserve account of the contributing partner, ensuring that, upon dissolution of the reserve, the contribution flows back solely to the contributing shareholder. Therefore, careful attention must be paid to the definition and structure of the shareholder accounts in the articles of association, and these should be adjusted if necessary. To avoid unpleasant surprises and liquidity difficulties, it is also advisable to include provisions in the articles of association stipulating that non-proportional contributions are only permissible on the basis of a (unanimous) shareholder resolution and that the shareholders are entitled to a (special) withdrawal right in the amount of any gift tax assessed against them.