Two natural persons had sold their shares in a non-profit limited liability company to another non-profit limited liability company at nominal value. Subsequently, the managing director (and main shareholder) of the new owner of the shares confirmed that the company owed the sellers DM 1,200,000 and that this debt was to be offset against the salary of the managing director (one of the previous shareholders) of the sold GmbH, which had been increased to DM 240,000 following the sale of the shares. The hidden payment was financed by distributing the profit of the sold GmbH to the buyer GmbH.
In its ruling of 12.10.2010(BFH I R 59/09), the BFH initially stated with reference to § 61 para. 3 AO states that in cases of serious violations of the asset commitment, tax benefits may be withdrawn retroactively for 10 years (including the year of the violation). The BFH saw such a case and confirmed the retroactive withdrawal of the tax benefit.
As much as the BHF’s decision may be comprehensible in its result, the justification for the decision is not sustainable. This would not be particularly dramatic if the BFH had not made general statements on the valuation of shares in tax-privileged corporations in its reasoning, which could be used by the tax authorities to assess such valuations in the future.
In essence, the BFH’s argument is as follows: Since the shares in a charitable GmbH “whose tax-privileged purposes are to continue to be pursued after the change of shareholder are not worth more (to a taxable acquirer) than at most the nominal value of the shares”, then, if a tax-privileged corporation pays a taxable shareholder “more than these amounts” for such shares, this “regularly constitutes a misuse of funds”, “because the previous shareholder is compensated for more than the value that the shares would have had if the tax-privileged purpose had been continued” (see point 19 a) of the ruling).
Here, the BFH uses a tortuous line of reasoning to establish market valuations, which may well come to a different conclusion:
- Even for a non-tax-privileged shareholder, the shares in a tax-privileged corporation are worth at least as much as remains after retroactive taxation following a breach of the asset commitment.
- The non-tax-privileged shareholder can continue to determine the valuation of the shares above the nominal value if he intends to wait for the period for subsequent taxation (10 years) in order to then distribute the profit already set aside in reserves when the shares were purchased without subsequent taxation.
- In addition, there may be reasons other than direct reasons for utilization that justify a higher than nominal value for a buyer (e.g. competition or capacity reasons).
However, the BFH may also have decided this way because a different decision would have made it clear that a consistent valuation of shares in tax-privileged corporations is hardly possible under the current legal situation. If, conversely, a tax-privileged shareholder were to sell the shares at nominal value to a non-tax-privileged buyer, they could also be accused of misusing funds: They could have sold the shares at a higher value. Just as the BFH assumed in the present case that a buyer continues the tax-privileged purpose, it could also be argued that he or she does not have to do so and that the share valuation should therefore be determined independently of the buyer’s motives.
Practical note
It remains to be seen how the tax authorities will deal with the ruling in practice and whether the BFH will come to a different conclusion in a constellation that does not have the character of abuse written on its forehead…
