When structuring their business activities, every entrepreneur is faced with the choice of which company form is the right one. It is often the case that a holding company or even a dual holding company is considered. In doing so, it is regularly neglected that the provision of Section 8b KStG with regard to the 951TP4 tax exemption of dividends prevents double taxation and does not constitute a tax exemption.
Established structures, successful business development and first company audit
It is quite right and understandable that the entrepreneur no longer deals with his structure in day-to-day business and sets up another limited company for new business areas. It turns out that such successful entrepreneurs run "their GmbHs" like a partnership, i.e. make payments and settlements as if "everything were one".
Possible legal consequences
This type of behaviour, which is often accompanied by a lack of documentation ("no posting without receipt/resolution"), leads to additional tax charges. Many people are familiar with the legal concept of hidden profit distribution, the first reaction to which is the correction of the posted operating expense. However, the hidden profit distribution is not only triggered if a company provides its shareholders with a pecuniary advantage that is not customary for third parties. It is also triggered if this pecuniary advantage benefits a person close to the shareholder.
The capital gains tax incurred on (concealed) profit distributions can represent a real, additional cost factor, for example if the shareholder resident abroad can no longer offset it.
Last but not least, the social security audit outside so-called one-man GmbHs can lead to high additional claims, especially if the shareholder-managing directors have so far like entrepreneurs but are considered employees in terms of social security law.
Advantages of the partnership
Of course, not all tax risks are eliminated with partnerships. However, they are easier to manage, especially when dynamic companies make short-term payments between shareholders and the company. They can be transferred and posted to the existing capital accounts with reference to the partnership agreement without the need for a separate resolution. A withdrawal does not trigger capital gains tax or similar.
Partnerships offer certain tax advantages for foreign shareholders not only, but in particular for this reason. The tax burden comparisons in cross-border shareholder constellations show that the overall tax burden for payments from partnerships is often more favourable than for corporations. This advantage is not diminished by the fact that some jurisdictions, e.g. our Swiss neighbours, generally find it more difficult to deal with partnerships.
Expansion abroad can also be implemented in a tax-optimised manner for partnerships in many countries. The so-called SME model can reduce the overall tax burden on the profits of foreign branches / companies to a very attractive level.
Finally, exit tax and unbundling risks for partnerships can also be minimised through robust structures.
Conclusion
The international tax world is complex and offers various tax structuring approaches. This article is intended to raise awareness of the need to always include partnerships in the respective structuring horizon. The national Retained earnings effects for partnerships should be given appropriate consideration.
Yours TAXGATE Team stands for proactive consulting for medium-sized and international companies/entrepreneurs in the implementation and ongoing support of tax-efficient, robust structures.
