Granting a Non-Atypical Sub-Participation in Company Shares: No Gift Tax Liability According to Current Supreme Court Jurisprudence
The transfer of company shareholdings—especially in the context of so-called sub-participations—is a complex subject that must be considered in a differentiated manner from both corporate and tax law perspectives. In particular, the question of whether the granting of a non-atypical sub-participation in a company share is subject to gift tax was long disputed and has now been clarified by a decision of the Federal Fiscal Court (BFH, judgment of 12.12.2007 – II R 10/06).
Definition and Legal Classification of Sub-Participation
Sub-participation is a specific type of company-related legal transaction. Here, the holder of a company share grants a third party participation in the economic success or failure of this share, without the latter acquiring an externally effective status as a co-shareholder. In practice, so-called silent sub-participation is particularly common; it does not need to be registered in the commercial register and has effect solely in the internal relationship.
A non-atypical sub-participation exists when the sub-participant does not receive any rights beyond mere economic participation. This distinguishes it from an atypical sub-participation, where the sub-participant takes part in significant decisions like a co-shareholder and bears entrepreneurial risk.
Gift Tax Classification and the Position of the BFH
Under gift tax law, in principle, every gratuitous transfer among the living is subject to taxation if the recipient’s assets increase (§ 7 para. 1 no. 1 ErbStG). The question was whether the granting of a non-atypical sub-participation should be seen as a taxable transfer of assets.
With its decision, the BFH clarified that the transfer of a non-atypical sub-participation in a company share does not constitute a gift within the meaning of the inheritance and gift tax law, as long as the sub-participant’s economic entitlement is limited to a contractual participation in the outcome and no additional power of disposal over the company’s assets is granted. The beneficial ownership remains with the main participant, so there is no enrichment relevant for gift tax purposes.
Reasoning of the Decision
The BFH bases its view particularly on the character of sub-participation as a contractual (obligatory) relationship. Since the sub-participant acquires no legal status as a shareholder and thus has claims only against the share owner and not against the company itself, no independent asset item within the meaning of the gift tax is legally created. Only in cases of transfer of an atypical sub-participation, where broader co-management and co-shareholder rights are granted, could a transfer subject to gift tax exist.
Importance and Practical Implications
The BFH’s decision provides clarity for practitioners that the transfer of non-atypical sub-participations—as long as these are strictly contractual—does not fall under gift tax. This result has significant implications for business and asset succession planning, as is often the case with intra-family transfers of company shares or within venture capital structures. Nevertheless, careful contract drafting considering tax and corporate law requirements remains essential to avoid undesirable tax consequences.
Distinction from Other Types of Participation and Consideration of Current Developments
It should be noted that the assessment of gift tax liability always depends on the individual case and is determined by the specific rights and obligations of the sub-participant. Particular care should be taken when distinguishing between typical and atypical sub-participation—the former is tax-privileged, while the latter is generally subject to gift tax.
Furthermore, attention must be paid to current legal developments, since, especially when designing new forms of participation or in cases of attempted circumvention of the tax authorities, an individual case review remains necessary. The BFH’s decision provides the parties involved with a valuable guideline, but still leaves room for further interpretation and adjustment by the legislature or tax administration.
References and Sources
For further reading, reference is made to the judgment of the Federal Fiscal Court, decision of 12 December 2007 – II R 10/06 (as cited by urteile.news). The relevant provisions in this context are in particular § 7 ErbStG.
If you have questions about the transfer of company shareholdings or the structuring of sub-participations regarding their tax or corporate law treatment, the Rechtsanwalt from MTR Legal, with in-depth expertise in the relevant legal areas, are available to assist you.
