As part of long-term succession planning, transfers subject to a reservation of usufruct have been very popular in the real estate sector for years. In the area of transfers of business assets, transfers of partnership shares subject to a reservation of usufruct have also been carried out frequently in recent years. According to the previous opinion of the tax authorities and the Federal Fiscal Court, both the usufructuary and the new owner of the partnership shares could be qualified as co-entrepreneurs of the company through careful structuring. A new development in the Federal Fiscal Court's case law raises questions in this regard.
Legal nature of usufruct and previous understanding
A usufruct is the right to benefit from another's property, right or property. A usufruct of company shares is often created to secure the income of the previous shareholder as part of a company succession. There are significant differences between the well-known real estate usufruct and a company share usufruct: With a company share usufruct, the right to income is generally limited to a profit that can be withdrawn, whereas with a real estate usufruct the usufructuary is entitled to the entire rental income. According to the currently prevailing legal opinion, there is a split-off real usufruct of membership without a simultaneous transfer of full rights. The consequence of this is that the usufructuary does not become a shareholder, but can only directly exercise the voting and administrative rights essential to securing his usufruct in relation to the company. The usufructuary grantor therefore remains a shareholder. For resolutions that particularly concern the core area of the participation, the right to vote therefore generally remains with the usufructuary grantor. There are various types and forms of usufruct. The reserved usufruct is the variant most commonly chosen in practice. Here, the former shareholder transfers his shares to a third party and reserves the usufruct of the shares. The successor therefore becomes a shareholder, but the transferor retains the profit claims from the shares. With quota usufruct, the usufruct is only limited to a portion of the income. There is also the option of a donated usufruct of shares. Here, the shareholder remains in his shareholder status, only the income from the shares is allocated to third parties, e.g. children. In the event that a company shareholding is not to be transferred to the successor as a gift by way of anticipated inheritance, but only upon death, surviving spouses, for example, can be given a so-called legacy usufruct with regard to the income, possibly also in proportion.
For tax purposes, the usufruct right was previously classified as an asset of special business assets. It was important that both the usufructuary and the new owner of the share were considered co-entrepreneurs in the partnership. This could be secured through contractual arrangements after the general criteria for co-entrepreneur status had been met. This ultimately meant that from a tax perspective there were two co-entrepreneurs (usufructuary and new owner).
New BFH rulings raise questions
The IV Senate of the Federal Fiscal Court has now contradicted this view in several rulings. In a ruling from 2018, the IV Senate ruled that only one co-entrepreneurship could be established for a company share. In addition to legal uncertainties regarding existing usufruct rights, which are often aimed at the goal of a double co-entrepreneurship, a reorganization also raises a number of new questions. For example, it is unclear what type of income the usufructuary will then actually earn. It is also unsatisfactory that in some federal states binding information on this matter is not provided. In this respect, extensive rights of recovery should be taken into account for currently planned transfers.
Due to the new development in the BFH case law, we advise you to have existing usufruct constellations reviewed for their effectiveness and to seek professional advice on new arrangements that take the above developments into account. As explained, there are legal and tax issues here, and we would be happy to help you resolve them and implement them in a way that is tailored to your needs.
The above information is intended only as initial information and to provide an overview of the topic. Depending on the individual case, the obligations and rights may change significantly. If you have any questions or need advice, please feel free to contact us.
Marc Conrad
Lawyer
Mail: Conrad@kmbpartner.de
0621 4250890
Dr. Rainer Bräutigam
Tax Consultant
Email: rainer.braeutigam@moore-tk.de
0621-42508-20
