Sale of investment

Definition and legal basis:

The sale of an investment refers to the sale of shares in a company, typically in a corporation such as a GmbH or AG. In the context of tax law, the sale of an investment is of particular importance as it can have considerable tax consequences. The legal basis can be found in the Income Tax Act (EStG), in particular in Section 17 EStG for significant shareholdings held by natural persons, and in the Corporation Tax Act (KStG) for corporations.

The tax treatment of the sale of shareholdings depends on various factors, such as the legal form of the selling and the sold company, the amount of the shareholding and the holding period. The aim of the statutory regulations is to avoid multiple taxation on the one hand and to prevent abusive arrangements on the other.

Tax treatment in various constellations:

1. sale by natural persons:
– For significant shareholdings (at least 1% in the last 5 years) in accordance with Section 17 EStG: Taxation of the capital gain at the personal income tax rate using the partial income method (60% taxable)
– For non-significant investments held as private assets: taxation in accordance with Section 20 EStG with the flat-rate withholding tax (25% plus solidarity surcharge)

2. sale by corporations:
– in principle 95% of the capital gain is tax-free in accordance with Section 8b KStG
– 5% is considered non-deductible operating expenses and is subject to corporation tax

3. disposal by partnerships:
– Taxation at partner level
– For natural persons as partners: application of the partial income method

Determination of the capital gain:

The capital gain is calculated as the difference between the selling price and the acquisition costs of the investment, less the selling costs. The following aspects must be taken into account:

– Consideration of capital increases and decreases
– Treatment of subsequent acquisition costs (e.g. shareholder contributions)
– Possible application of allowances (e.g. EUR 9,060 for Section 17 EStG)
– Consideration of losses from previous years

Design options and pitfalls:

There are various structuring options for the sale of shareholdings, but also potential pitfalls:

1. structuring options:
– choice of date of sale to optimize the tax burden
– structuring as an asset deal or share deal
– use of reinvestment reserves (section 6b EStG)
– contribution to a corporation to make use of section 8b KStG

2. pitfalls:
– Hidden profit distributions in the case of inappropriate sale prices
– Loss of loss carryforwards in accordance with section 8c KStG in the event of a change of shareholder
– Blocking periods in the case of previous tax-neutral conversions
– Abuse provisions such as section 42 AO in the case of artificial arrangements

International aspects:

Additional aspects must be taken into account in the case of cross-border sales of shareholdings:

– Application of double taxation agreements (DTAs)
– Possible exit taxation when transferring shareholdings abroad
– Special features of the sale of shares in foreign companies
– Withholding tax issues in certain countries

Current developments and discussions:

The tax treatment of the sale of shareholdings is the subject of ongoing debate:

1. reform of the taxation of capital gains: Considerations on harmonizing the taxation of corporations and partnerships

2. tightening of abuse rules: Efforts to curb aggressive tax arrangements

3. digitalization: challenges in the valuation and taxation of investments in digital companies

4. sustainability aspects: Discussions on tax incentives for investments in sustainable companies

5. international harmonization: efforts to standardize the taxation of the sale of participations at EU and OECD level

Practical significance for companies and investors:

The sale of shareholdings is of great practical relevance:

– For companies: An important aspect of restructuring, mergers and acquisitions
– For investors: Key factor in investment decisions and exit strategies
– For start-ups: Significant in the acquisition of venture capital and subsequent exit scenarios

The complex tax regulations require careful planning and often the involvement of tax experts in order to optimize the tax consequences of the sale of an investment.

In summary, the sale of shareholdings is an important topic in corporate tax law with significant financial implications for companies and investors. The tax treatment is complex and depends on many factors, but also offers scope for structuring. In view of the constantly changing economic and legal framework, the sale of shareholdings remains a dynamic field that requires continuous attention and adaptation.