In a letter dated 20 March 2017, the Federal Ministry of Finance qualified the allocation of new shares as part of the spin-off of Hewlett-Packard Incorporated as a taxable distribution in kind. The Düsseldorf Fiscal Court disagreed with this in its judgement dated 29 January 2019. According to this judgement, shareholders did not receive taxable income from the issue of shares in Hewlett-Packard Enterprise Company (HPE). The spin-off completed by the HP Group in 2015 therefore qualifies as a (profit-neutral) spin-off within the meaning of the special income tax provisions of Section 20 (4a) EStG. In the opinion of the court, such a transaction therefore does not trigger taxation at the time the shares are allocated.
Background:
With effect from 31 October 2015, Hewlett-Packard Company (HPC) changed its name to Hewlett-Packard Inc (HPI). Subsequently, with effect from 1 November 2015, HPI transferred its enterprise customer business to the subsidiary Hewlett-Packard Enterprise Company (HPE), which was founded in February 2015, by way of a spin-off. HPC shareholders received one share in the renamed HPI (ISIN: US40434L1052, WKN: A142VP) and one share in HPE (ISIN: US42824C1099, WKN: A140KD) for one old HPC share (ISIN: US4282361033, WKN: 851301).
In its grounds for judgement, the court firstly opposed the view of the tax authorities and the legal consequences of a spin-off and a transfer of shares to shareholders described in the withholding tax decree. On the other hand, the tax court specified the term "spin-off" from its point of view and argued in favour of a "type-oriented" interpretation of the term "spin-off". The court therefore considers the allocation of a new ISIN for a merely renamed company to be harmless.
The appeal has been authorised as this case law could have a broad impact on a large number of investors.
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