BMF adopts the modified separation theory for transfers for partial consideration
The Bundesministerium der Finanzen (BMF, Federal Ministry of Finance) has issued a letter dated 20 October 2026 commenting on the application of the modified separation theory to transfers for partial consideration of individual business assets. The letter bears the reference IV C 6 – S 2241/00066/022/040 and was officially published under the subject line “Application of the modified separation theory”.
The reason for this is the judgment of the Bundesfinanzhof (BFH, Federal Fiscal Court) of 11 December 2025 – IV R 17/23. The BFH has changed its previous case law on profit determination in the case of transfers for partial consideration under § 6 Abs. 5 Satz 3 Nr. 2 EStG (German Income Tax Act) and rejected the strict separation theory that had until then been applied by the tax authorities. The earlier BMF letter of 12 September 2013 – IV C 6 – S 2241/10/10002, BStBl I S. 1164 (Bundessteuerblatt, Federal Tax Gazette) – is fully repealed by the new letter.
BFH decision departing from the strict separation theory
Previous administrative position
Under the strict separation theory previously advocated by the tax authorities, hidden reserves were disclosed proportionately in the case of transfers for partial consideration. The decisive factor was the ratio between the consideration paid and the fair market value of the asset transferred.
The BFH no longer follows this approach for the business scenario under § 6 Abs. 5 Satz 3 Nr. 2 EStG. Instead, according to the decision, the modified separation theory must be applied. Under this theory, the carrying amount is allocated proportionately up to the amount of the partial consideration.
Dispute before the BFH
The lower court in the proceedings was the Finanzgericht Rheinland-Pfalz (Fiscal Court of Rhineland-Palatinate) in its judgment of 14 June 2023 – 2 K 1826/20. The dispute concerned the transfer of developed real property from the special business assets of a co-entrepreneur to the joint assets of a sister partnership, C-KG. The assessment notice 2017 of 11 August 2020 was at issue.
The Finanzamt (tax office) and the Finanzgericht had applied a uniform consideration ratio of 89.51% for the land and building on the basis of the strict separation theory. The BFH amended the assessment notice to the effect that the special business profit determined for the joined party is reduced by EUR 96,530.76. The calculation was assigned to the Finanzamt; the costs of the entire proceedings were imposed on the defendant.
BFH’s reasoning
The IV. Senat des BFH (Fourth Senate of the Federal Fiscal Court) saw no reason to refer the matter to the Großen Senat des BFH (Grand Senate of the Federal Fiscal Court). It also rejected the variant of a modified separation theory with a loss contribution because, in its view, this contradicts the wording of § 6 Abs. 5 Satz 3 Nr. 2 EStG and the carrying amount approach provided for there.
According to the second official headnote, the meaning and purpose of § 6 Abs. 5 Satz 3 EStG is decisive. The provision is intended to enable restructurings involving co-entrepreneurships with the transfer of individual assets without an income tax burden. Accordingly, the modified separation theory also applies where, with regard to the gratuitous part, there is a withdrawal.
The BFH expressly distinguished the business scenario from taxable private assets. For these assets, settled case law, including in the proceedings IX R 15/23 and IX R 17/24, continues to apply the strict separation theory. The judgment IV R 17/23 was published on 19 February 2026 and is documented, among other places, in the IWW specialist database under retrieval no. 252607 and in Der Betrieb 2026, p. 567.
Revised administrative rule
Transfer for partial consideration
With the BMF letter, paragraph 15 of the BMF letter of 8 December 2011 – IV C 6 – S 2241/10/10002, BStBl I S. 1279 – is revised. According to the new wording, a transfer is made for partial consideration if the consideration is below the fair market value of the asset transferred.
Consideration may include in particular:
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cash payments,
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the assumption of liabilities,
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the granting of partnership interests,
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the reduction of partnership interests.
To the extent that the transfer is made for consideration, there is a sale. To the extent that it is made without consideration, the carrying amount must be continued. Hidden reserves are disclosed only to the extent that the consideration, insofar as it does not consist of partnership interests, exceeds the carrying amount.
Adjustment regarding § 6 Abs. 5 EStG
Paragraph 38 of the BMF letter is also adjusted. Accordingly, § 6 Abs. 5 EStG does not apply to the extent that hidden reserves are disclosed proportionately or in full.
The tax authorities are thus aligning their view with the BFH’s new case law. The decisive factor remains whether, and to what extent, the partial consideration exceeds the carrying amount.
No loss realisation where fair market value is lower
If the fair market value of the transferred asset is below the carrying amount, the modified separation theory does not result in the transferor realising a loss. According to the administrative position, all hidden reserves attributable to the partial consideration pass to the transferee. Correspondingly, hidden liabilities also pass to the transferee on a pro rata basis.
The distinction is particularly important in cases in which the partial consideration, carrying amount and fair market value diverge. In this context, a distinction must be made between a transfer for partial consideration and a transfer for full consideration.
BMF examples of the new treatment
Example 1: Assumption of a liability
A and B each hold 50% of AB-OHG (general partnership). In his sole proprietorship, A holds a passenger car with a carrying amount of EUR 1,000. The fair market value of the car is EUR 10,000. In addition, A has a liability to the bank of the car manufacturer in the amount of EUR 3,000.
Without granting partnership interests, A transfers the vehicle to the joint assets of AB-OHG. In doing so, AB-OHG also assumes the loan.
According to the BMF’s solution, there is a transfer of the car for partial consideration. Hidden reserves in the amount of EUR 2,000 are disclosed in A’s sole proprietorship. This amount results from the assumed liability of EUR 3,000 less the carrying amount of EUR 1,000. AB-OHG recognises the car in the joint assets at EUR 3,000 and also recognises the liability at EUR 3,000.
Example 2: Partial consideration below the carrying amount
A and B each hold equal 50% interests in AB-OHG. A’s sole proprietorship includes a passenger car with a carrying amount of EUR 1,000. The fair market value of the car is EUR 10,000. A transfers the car to the joint assets of AB-OHG but grants no partnership interests. AB-OHG pays EUR 900 for this.
The BMF qualifies the transaction as a transfer for partial consideration. Since the consideration of EUR 900 is below the carrying amount of EUR 1,000, no hidden reserves are disclosed in A’s sole proprietorship. The derecognition of the car in A’s sole proprietorship has no effect on profit or loss.
In the amount of the difference between the carrying amount and the partial consideration, there is a withdrawal of EUR 100. AB-OHG must continue to recognise the car at EUR 1,000. This amount is composed of acquisition costs of EUR 900 and a contribution of EUR 100 from the gratuitous transfer.
Example 3: Fair market value below the carrying amount
A and B each hold 50% interests in AB-OHG. In his sole proprietorship, A holds a passenger car with a carrying amount of EUR 1,000. The fair market value of the car is EUR 500. A transfers the car without granting partnership interests to the joint assets of AB-OHG. AB-OHG pays EUR 400 for this.
According to the BMF, the solution corresponds to the treatment in the second example. In the amount of the difference between the carrying amount and the partial consideration, there is a withdrawal of EUR 600. AB-OHG recognises the car at EUR 1,000. This amount consists of acquisition costs of EUR 400 and a contribution of EUR 600 from the gratuitous transfer.
Example 4: Transfer for full consideration where fair market value is lower
The facts correspond to the third example, but AB-OHG pays EUR 500 for the car.
According to the BMF’s solution, in this case there is a transfer for full consideration. § 6 Abs. 5 EStG is not applicable. A realises a disposal loss of EUR 500 in the amount of the difference between the carrying amount and the fair market value. AB-OHG recognises the car at acquisition costs of EUR 500.
Scope of application and transitional rule
The BMF letter of 20 October 2026 must be applied in all open cases. However, for transfers for partial consideration that took place before 19 February 2026, the letter provides for a transitional rule. 19 February 2026 is the date of publication of the BFH judgment IV R 17/23.
The transferor and transferee may jointly and irrevocably apply for the strict separation theory to continue to be applied to these earlier transactions. The application must be filed with the Finanzamt locally competent for the transferor.
The new rule therefore concerns in particular the tax treatment of transfers of individual business assets between special business assets and joint assets as well as comparable scenarios within the scope of § 6 Abs. 5 Satz 3 EStG. For companies, co-entrepreneurships, investors and high-net-worth individuals, the correct classification of such transactions can be of considerable significance for determining taxable profit. MTR Legal Rechtsanwälte advises in connection with restructurings, tax-related transfers and the classification of transactions under § 6 Abs. 5 EStG as part of its legal advice in tax law.
