YOUR
Search

    03.12.2024

    2024 Annual Tax Act fills legal loophole concerning private sales


    In response to the decision of the German Federal Fiscal Court dated 26 September 2023 (IX R 13/22), legislation is putting a stop to the opportunities to avoid the taxation of profits from private sales which this decision had previously opened up. In the future, it will not only be the purchase and sale of shares in partnerships that will be treated the same as the purchase and sale of the proportionate assets in section 23 (1) sentence 4 of the German Income Tax Act (Einkommensteuergesetz, EStG). Rather, the new provision generally refers to "communities of joint owners" (Gesamthandsgemeinschaften).

    In the above decision, the Federal Fiscal Court stated that the purchase of a share in a community of heirs (Erbengemeinschaft) does not constitute an acquisition within the meaning of section 23 (1) sentence 1 EStG and therefore does not qualify as a sales transaction subject to taxation. A community of heirs does not constitute a partnership (Personengesellschaft), meaning neither the purchase nor the sale falls under the provisions of section 23 (1) sentence 4 EStG which sets forth that the purchase and sale of shares in partnerships are deemed to be equivalent to the purchase and sale of the proportionate assets. Thus, in practice, it made sense to acquire a co-heir share (Miterbenanteil) instead of an individual asset because such acquisition did not qualify as a private purchase or sales transaction within the meaning of section 23 EStG and was therefore exempt from tax. 

    At the recommendation of the German Finance Committee, the legislation recently decided to fill this loophole. Section 23 (1) sentence 4 EStG now does not only mention the partnership but also the community of joint owners. In doing so, the purchase or sales of a share in a community of joint owners has been equated with the purchase and sale of an asset associated with the joint ownership. The consequence is that the speculation period is based on the time when the share in the joint ownership was acquired and that the sale may fall under section 213 EStG.

    By means of this reform, the legislation fills the loophole which was often used in practice to avoid speculation periods and, subsequently, the taxation of profits from private sales. This is relevant, in particular, for communities of heirs. The reform has less significance for partnerships under German civil law (GbR), i.e. another form of communities of joint owners, because they were already covered by section 23 (1) sentence 4 EStG as partnerships. 

    The newly-amended section 23 (1) sentence 4 applies to all sales where the speculation period has not yet expired.

    Teresa Werner
    Alexandra Wolter

    ADVANT Beiten Advises Banyan Software on Acquisition of FoxInsights
    Freiburg, 10 February 2025 - The international law firm ADVANT Beiten has provid…
    Read more
    ADVANT Beiten Advises Shareholders of HECHT Contactlinsen GmbH on Sale of their Shares to Novum Capital
    Freiburg, 21 November 2024 – The international law firm ADVANT Beiten has provid…
    Read more
    Germany: Introduction of Business Identification Number Requires Credit Institutions to Adjust KYC Processes
    On 24 October 2024, the Business Identification Number (Wirtschafts-Identifikati…
    Read more
    [Translate to English:]
    ADVANT Beiten Advises Amphenol on Acquisition of Luetze Group
    Berlin, 16 October 2024 - The international law firm ADVANT Beiten has advised t…
    Read more
    ADVANT Beiten Recruits Three-Member Tax Team with Partner Dr Joachim Reichenberger from Luther
    Munich, 1 October 2024 – The international law firm ADVANT Beiten continues to e…
    Read more
    ADVANT Beiten Advises Interhyp on Signing a Green Lease Agreement on the iCampus Munich
    Munich/Frankfurt, 20 August 2024 – The international law firm ADVANT Beiten has …
    Read more
    Update on mandatory electronic invoices for transactions between domestic traders from January 1, 2025
    On 8.7.2024, the author published an article on the VAT obligation to issue elec…
    Read more
    Mandatory electronic invoices for services between domestic entrepreneurs from January 1st 2025
    It is well known that electronic invoicing between domestic companies will become mandatory from 1.1.2025 with transitional periods until 1.1.2028 at the latest. The Federal Ministry of Finance published a…
    Read more