Extension of the possibilities for the tax-neutral conversion of companies across national borders

published on 17th February 2022

Since 01.01.2022, the income tax-neutral conversion of companies domiciled in Germany, also with the participation of shareholders domiciled abroad („third countries” within the EU), is in principle possible.

This change had to be made in order to take into account the principles of non-discrimination applicable within the EU and the requirement of freedom of movement. The income tax-neutral option of transformation transactions refers to mergers (amalgamations), change of legal form transactions, as well as to spin-offs and split-ups, i.e. to arrangements which represent a universal succession. However, this does not apply to spin-offs, i.e. when assets are to be transferred to a subsidiary, for example, by way of singular succession.

The arrangements planned abroad at the level of the shareholder resident there must be „comparable” to the cases of universal succession regulated under German law. Whether this is the case must be examined on a case-by-case basis and requires a corresponding international comparison of the structuring options regulated in Germany and the restructuring variants possible in the respective other EU state.

In practice, this will, on the one hand, affect group structures which, for example, include a corporation with its registered office in Germany and shareholders (financial holding companies) with their registered office in the Benelux countries. However, conversion transactions of operationally active power generation companies domiciled in other EU countries, in which shareholders domiciled in Germany as well as in other third countries are involved, may also be affected.

It is important to note that this tax neutrality is not regulated by law for transaction taxes (real estate transfer tax or value added tax) that may be incurred. Here, the national regulations applicable in the individual case and the provisions of the respective double taxation agreement must be exhausted to the extent possible. This can also lead to complete tax neutrality of the restructuring in a specific case.