Frankfurt a.M., Germany

Gift tax trap for intra-family transactions in Germany

By Martin Thieslauk and Zlata Velagic, Benefitax GmbH

Beware of intra-family transactions! As the following example shows, foreseeable increases in value in the future may trigger gift tax even before profits are realised.

Initial situation

G holds a 100% share in a German corporation. G also holds 51% and his son 49% of a German holding company. The corporation owns a property valued at EUR 2 million according to an expert opinion, which it initially acquired for EUR 500,000. G sells his shares in the corporation to the holding company for EUR 2 million. However, shortly after, the corporation can sell the property to a third party for EUR 15 million. The corporation achieves a taxable profit of EUR 14.5 million. After the deduction of required taxes, a distributable amount of approximately EUR 12 million remains.

Tax risks in the sale of the corporation shares

Contracts between relatives and related parties are only recognised for tax purposes if they are “at arm’s length”. The property is the value-determining factor in the assets of the corporation and therefore decisive for the value of the shares. A third party would have had to pay EUR 15 million for shares in the corporation. However, the contract on the sale of the shares for EUR 2 million becomes effective under civil law.

The view of the tax offce is that the EUR 2 million would probably not be recognised for tax purposes. With reference to the arm’s length principle, the EUR 15 million is assumed. This is confirmed by the sale of the property in temporal connection with the sale of the shareholding.

From a tax point of view, the holding company received shares in the corporation worth EUR 15 million for only EUR 2 million. The value of the shares in the holding company thus increases by EUR 13 million. As the son holds 49% of the holding company, he has a gratuitous increase in value of 49% of EUR 13 million. The son is thus “enriched”, and this leads to gift tax of over EUR 1 million.


Martin Thieslauk

Martin Thieslauk

GGI member firm
Benefitax GmbH Steuerberatungsgesellschaft Wirtschaftsprüfungsgesellschaft
Advisory, Auditing & Accounting, Corporate Finance, Fiduciary & Estate Planning, Tax
Frankfurt am Main, Germany
T: +49 69 256 227 60
E: This email address is being protected from spambots. You need JavaScript enabled to view it.
W: benefitax.de

Benefitax GmbH is a tax consultancy and public auditing company located in Frankfurt, which is widely recognised as the financial centre of Germany. Benefitax predominantly serves German entities of foreign multinational groups, mid-sized German companies with cross-border activities, and wealthy private individuals.

Martin Thieslauk is a certified German tax advisor and senior manager at Benefitax. He mainly advises international clients and their German branches on all questions of German tax law including payroll accounting issues, and assumes the tasks they have to perform in Germany to fulfil their tax and social security obligations. In addition, he advises private individuals from Germany and abroad.
Zlata Velagic

Zlata Velagic

GGI member firm
Benefitax GmbH Steuerberatungsgesellschaft Wirtschaftsprüfungsgesellschaft
Advisory, Auditing & Accounting, Corporate Finance, Fiduciary & Estate Planning, Tax
Frankfurt am Main, Germany
T: +49 69 256 227 60
E: This email address is being protected from spambots. You need JavaScript enabled to view it.
W: benefitax.de

Zlata Velagic is a certified German assistant tax consultant and assistant advisor in international taxation at Benefitax. She is mainly responsible for the preparation of annual financial statements and the filing of tax returns for international clients and their German branches, and assumes the tasks they have to perform in Germany to fulfil their tax and social security obligations. In addition, she processes tax returns for private individuals from Germany and abroad.


Publsihed: Trust & Estate Planning Newsletter, No. 08, Autumn 2021 l Photo: travelview - stock.adobe.com

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