Managing holding partnership as controlling company

Whether and under what conditions a managing holding partnership can be considered as a parent company in the context of a fiscal unity for income tax purposes has been the subject of differing assessments by the courts and tax authorities for years, resulting in repeated disputes about the relevant requirements in this respect. The BFH has now once again had to decide such a dispute and confirmed its previous legal opinion in its decision dated of November 27, 2024 (case no. I R 23/21).

As part of a multi-stage restructuring in 2008, a limited partnership (KG) took over all shares in an operating GmbH and, at the same time, the profit and loss transfer agreement concluded between the GmbH and its previous sole shareholder. Following an external audit, the tax authority no longer recognized the fiscal unity under corporation tax law, as the KG created by way of the spin-off had not yet commenced any commercial activity of its own in the year in dispute. The fiscal court and the German Federal Fiscal Court (BFH) decided otherwise.

According to Section 14 (1) sentence 1 no. 2 sentence 2 KStG, a partnership can only be the controlling company of a fiscal unity if it carries out a commercial activity (within the meaning of Section 15 (1) sentence 1 no. 1 EStG). A partnership that merely manages assets is therefore indisputably not sufficient to establish the status of a fiscal unity parent. However, the BFH expressly states that although the commercial activity must be carried out by the partnership itself, it does not have to be present at the beginning of the financial year of the controlled company. In this respect, the establishment of the KG by way of a spin-off is irrelevant if it was active after its formation.

On the other hand, the BFH confirms its established case law according to which a commercial activity of the parent partnership can also consist of the activity as a managing holding company. This can be reflected economically in a uniform management of the controlled companies that is recognizable by external characteristics (e.g. instructions, recommendations, meetings or consultations). A merely tacit management resulting from an extensive personal interdependence of the management of the respective companies is not sufficient. Similarly, an activity goes beyond mere asset management if it not only involves holding and managing shareholdings by exercising shareholder rights, but also if the managing holding company pursues corporate policy in a planned manner or otherwise exerts a decisive influence on the day-to-day management of the subsidiaries.

Insofar as the tax authorities (German Federal Finance Ministry circular dated November 10, 2005) place additional requirements on the commercial activity of a controlling partnership and presuppose its own commercial activity that goes beyond that of a managing holding company, for example by providing paid services to the subsidiaries, the BFH expressly does not follow this. On the one hand, the wording and references of the relevant provisions do not provide any restrictive indications. Nor does this interpretation mean that the requirement of section 14 (1) sentence 1 no. 2 sentence 2 KStG is typically empty, as not every parent company meets the requirements of a managing holding company. This is because there is a considerable difference between the purely asset-managing exercise of shareholder rights and commercial activity through the exercise of uniform management.

With reference to management minutes and the strategic measures laid down therein, the fiscal court had assumed that the KG had sufficient commercial activity of its own. As this was a possible, comprehensible interpretation that did not violate the principles of reasoning or experience, the BFH was bound by it. The KG was therefore also suitable as a (only) managing holding company as a parent company.