Paid redemption of a usufruct in GmbH shares

Under civil law, usufruct represents the highly personal right of the beneficiary to draw the corresponding benefits from the encumbered object in place of the owner. Usufructuary rights are generally not transferable to other natural persons, but expire upon the death of the beneficiary or can be cancelled by the beneficiary's unilateral declaration to the obligated party or by informal contract. If the shareholder of a GmbH transfers his share subject to a usufruct, the beneficiary reserves the right to the resulting profit distributions during his lifetime. From a tax perspective, however, the corresponding income is only attributable to the beneficiary if he or she is entitled to beneficial ownership of the share. Against this background, the German Federal Fiscal Court had to decide in its ruling of February 11, 2025 (case no. IX R 14/24) on the tax treatment of the redemption for consideration of a reserved usufruct of GmbH shares by the usufructuary.

In the case in dispute, the 49 % shareholder in a GmbH halved its shareholding and then transferred a 24.5 % shareholding to each of its two daughters as a gift in 2012, subject to a usufruct. This included the drawing of the benefits from the shares - in particular the pro rata net profit - but not the exercise of membership rights. Due to the sale of the shares by the daughters in 2019, the usufructuary relinquished her right in return for payment of a redemption amount. The tax office taxed this as income from capital assets (Section 24 no. 1 in conjunction with Section 20 (1) no. 1 of the German Income Tax Act). The appeal against this was upheld by the Fiscal court. The German Federal Fiscal Court agreed.

The attribution of income from such a GmbH shareholding to the beneficial owner presupposes that the latter is not only entitled to ownership under civil law, but also beneficial ownership in accordance with Section 39 (2) no. 1 of the German Fiscal Code of the shares subject to usufruct. However, according to the findings of the Fiscal Court, which are binding on the German Federal Fiscal court, the entitled party had already lost beneficial ownership of the GmbH shares to her daughters subject to usufruct in 2012 as part of the anticipated succession - in particular due to the exercise of the membership rights to the GmbH shares to which they have been entitled since then. Therefore, there was no income from capital assets in the case in dispute, as the usufructuary was not the beneficial owner or shareholder of the GmbH shares and therefore not the subject of the redemption payment of the usufruct.

The fact that the dividends for the assessment periods 2012 to 2018 were incorrectly attributed to the usufructuary as income from capital assets does not change anything with regard to the attribution of income for the 2019 year of dispute, which is not possible in this respect. Subsequent income in the form of compensation that would be granted for the relinquishment of a profit share was also ruled out. Only participations under company law, and not participations under the law of obligations, can be considered as profit participation. However, the exercise of the membership rights required for this was not the right of the entitled party, but its daughters. Finally, the redemption amount was not taxable as income from a former activity (Section 17 in conjunction with Section 24 no. 2 of the German Income Tax Act). Due to the transfer of shares as a gift, there was no consideration required for the transfer to be classified as a disposal transaction. The redemption of the usufruct in return for payment merely represents a non-taxable reorganisation of assets for the (previously) entitled party in the 2019 year of dispute.