Tax Implications of Commercial Partnerships: Formation and Termination Explained

1. What is a commercial partnership?

Partnerships are not subject to income tax themselves, but the individual partners. In terms of tax law, the principle of transparency applies.

Therefore, a partnership can use all seven types of income of § 2 Abs. 1 EStG, with the exception
of income from non-self-employed work according to § 19 EStG.

If the partnership pursues a pure asset management activity (which is what many family businesses strive for), the partners have income from renting and leasing according to § 21 EStG or from capital assets according to § 20 EStG.

However, if, for whatever reason, a commercial partnership pursuant to Section 15 (3) No. 2 EStG is formed, all income of the partners becomes commercial income pursuant to Section 15 EStG.

What is more devastating, however, is that at the time of the formation or termination of a commercial partnership, a business opening or business cessation is assumed (with the corresponding special tax consequences).

2. What are the requirements for the formation of a commercial partnership?

1. The company must carry out an activity undertaken with the intention of generating income.
2. This activity must not be a commercial activity.
3. Only corporations may be involved as personally liable partners in the company.
4. Only the personally liable partners or third parties may be authorized to manage the company.

3. What are the tax effects of creating a commercial partnership?

A commercial partnership is created at the moment when the criteria of § 15 Para. 3 No. 2 Sentence 1 EStG are met.

An asset-managing partnership, which previously only generated income from Section 21 EStG, generates its income exclusively via Section 15 EStG (reclassification of income) when it becomes a commercial partnership.

At the same time, there is a new company opening at this moment. The assets of the former asset-managing partnership are, according to § 4 para. 1 sentence 8 HS. 2 EStG i. V. m. § 6 paragraph 1 No. 5 EStG to contribute to the business assets. In most cases, the investment value corresponds to the partial value.

And this is exactly where the tax trap lies in the unintentional creation of a commercial partnership. Because at this point in time there are hidden reserves to be uncovered (!!!).

4. What are the tax implications of the (fictitious) termination of a commercial partnership?

The commercial nature of the partnership ends when one of the elements of Section 15 Paragraph 3 No. 2 EStG no longer applies. The omission of the elements of the offense does not always have to be related to the factual dissolution of the partnership. It is sufficient, for example, that the management is transferred to a natural person or that there is a corresponding change in the shareholder structure.

In all cases, there is a business closure in the tax sense, in which the assets are transferred to the private assets of the partners of the asset-managing partnership (private withdrawal according to § 16 Para. 3 S. 7 EStG). This means that all hidden reserves must be disclosed and taxed.

This article does not constitute concrete and individual legal advice, but merely provides a rough initial overview of the legal matter described. You can only obtain legal certainty for your specific case constellation through coordinated examination and advice from a competent lawyer.

I am at your disposal as a lawyer and specialist lawyer for a legal assessment and assessment of your case and represent your interests assertively and resolutely. Contact me by phone or write to me.

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