109. Capitalisation Of Executory Contracts

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The Muenster Tax Court has handed down a decision (EFG 1997, 1381 - 10 June 1997) which will affect "asset deal" purchases of businesses no matter which way the case goes on appeal.

The case involves a withdrawing partner in a German commercial general partnership (oHG) who received a settlement payment from the sole remaining partner (sec. 142 (1) and 105 (2) HGB, sec. 738 (1) BGB). Since the payment of a settlement in return for the interest of a withdrawing partner is a purchase transaction for tax purposes, the holding of the case applies to all asset purchases of businesses including purchases of interests in partnerships. Under German tax law, the purchase of a partnership interest is treated as a pro rata purchase of the underlying assets.