Significance of appraisal costs in the acquisition of GmbH shares – Current tax classification
The acquisition of shares in a limited liability company (GmbH) is not only a central process in corporate law but also regularly raises tax-related issues. In particular, acquirers often face the question of how expenses incurred in connection with the share transfer should be classified for tax purposes. A typical example is the costs incurred for preparing an appraisal that provides information on the value of the GmbH shares to be acquired.
The classification of such appraisal costs, as addressed in a decision by the Federal Fiscal Court (BFH, judgment of March 20, 2007 – VIII R 62/05), is of practical relevance for investors and entrepreneurs alike. The following provides a detailed examination of the current legal treatment of these expenses.
Tax treatment of incidental acquisition costs for GmbH shares
Definition and legal classification of incidental acquisition costs
Tax law defines incidental acquisition costs as expenses that arise in direct connection with the acquisition of an asset and can be allocated to it. Unlike ongoing business expenses or advertising costs, incidental acquisition costs increase the value of the shareholding and must therefore be capitalized as part of the acquisition costs. These include, among others, notary and land registry fees, as well as valuations and appraisals, provided their purpose is to prepare for and execute the acquisition process.
The role of appraisals for the valuation of GmbH shares
As part of due diligence and determining an appropriate purchase price, it is often necessary to obtain an appraisal of the economic value of the GmbH shares. According to the BFH decision, the costs incurred for this purpose are generally classified as incidental acquisition costs, provided the appraisal explicitly serves the preparation of the share acquisition. It is irrelevant whether the costs are charged to the acquirer by their contractual partner or incurred through an independent engagement.
Recognition for tax purposes as incidental acquisition costs requires that the expenses be used to establish clarity regarding the value of the economic interest in the first place. However, if the appraisal is produced only after conclusion of the purchase contract and bears no relation to the purchase decision, the tax assessment may change. Precise timing and substantive attribution must therefore be carefully examined in each individual case.
Difference compared to the tax treatment of ongoing expenses
The distinction between incidental acquisition costs and other expenses that may be immediately deductible as operating expenses (or advertising costs in private assets) is of significant importance, as this results in different tax consequences regarding the subsequent sale of the GmbH shares and the tax treatment of profits or losses. While operating expenses reduce the taxable profit in the year of payment, incidental acquisition costs are only taken into account when determining the capital gain on disposal.
Practical relevance and possible consequences for share acquirers
Significance for tax planning
The classification of appraisal costs as incidental acquisition costs can influence tax planning when acquiring GmbH shares. The increase in value of the acquired shareholding has a tax-reducing effect in the event of a later sale, since the acquisition costs can be deducted from the sales proceeds. It is therefore advisable for acquirers to precisely document both the timing and reason for incurring the appraisal costs as part of transaction planning.
Interactions with corporate law and contract drafting
It should not be overlooked that the point of incurrence and the party bearing the costs (i.e., whether the appraisal is commissioned by the acquirer or the seller) can have implications under corporate law and contractual arrangements. Likewise, the assessment of ancillary services within the scope of negotiating the total transaction costs can be of practical importance.
Delineation issues and current developments
In tax practice, issues can arise in distinguishing between acquisition-related costs and ongoing expenses, particularly when several appraisals are prepared at different times or when an appraisal serves both the preparation of the acquisition and the subsequent utilization of the shareholding. In such cases, the burden of proof is crucial, and it is recommended to precisely document the purpose of commissioning and the intended use.
Case law and the position of the tax authorities
The BFH judgment is of fundamental importance in that it clearly defines the decisive criteria and thus provides greater legal certainty regarding the classification of appraisal costs in the acquisition of shares in corporations. The tax authorities follow this approach and recognize such expenses as part of the acquisition costs, provided it can be proven that they are incurred in connection with the acquisition process.
Concluding remarks
The tax treatment of appraisal costs in connection with the acquisition of GmbH shares is of great practical importance for companies, investors, and high-net-worth individuals. Careful legal and tax assessment of each individual case is recommended to avoid subsequent disputes with the tax authorities and detrimental tax consequences.
For legal questions concerning the tax classification of incidental acquisition costs and the structuring of share acquisitions, the Rechtsanwalt at MTR Legal provide expert, internationally oriented advice.
