067. Constructive Contributions As Gifts To Corporations

KPMG Germany Webpage
Click on the above link to visit the KPMG Germany webpage on the Mondaq website
Dicta in a decision rendered by the Federal Tax Court dated 25 October 1995 (BStBl II 1996, 160) suggested that constructive contributions to corporations by their shareholders might in some circumstances constitute taxable gifts under the German estate and gift tax law. The case involved a GmbH owned by a two persons, father and son. The father had loaned the GmbH substantial sums. Pursuant to shareholder resolution, the father agreed to waive rights to repayment of or interest on the loans for a period of 10 years. The tax authorities treated the waived interest as a taxable gift to the son in proportion to his ownership interest in the GmbH (here 75 %). Under German law, the donee is primarily liable for gift tax. The Federal Tax Court upheld a lower court decision in favour of the son, the grounds of which were in essence that the waiver was an act which benefited the GmbH, not the