Advance profit to the general partner GmbH - profit retention with the GmbH & Co. KG no longer possible?

Under consideration of the judgement of the BFH of 28 May 2020 Dr. Christian Becker informs about the profit retention at the GmbH & Co. KG.

Initial situation:

With the legal form of the GmbH & Co. KG there is often the consideration to transfer profits at the KG by means of advance profit to the general partner GmbH. The general partner regularly has to pay corporate income tax of 15% on this advance profit. Conversely, the limited partners of the KG are then no longer taxed at their personal tax rate. The general partner GmbH takes over the responsibility for the GmbH & Co. KG, the general partner GmbH is responsible for the management. Often the limited partners of the KG are at the same time partners and managing directors of the general partner GmbH. In this constellation, however, the payment of an advance profit to the general partner GmbH is no longer recognized after the decision of the Federal Court of Finance, ruling of 28.05.2020 - IV R 11/18. Therefore, it is no longer possible to retain profits at the general partner GmbH.

Ruling of the Federal Finance Court (BFH) of 28 May 2020:

In the case decided by the BFH, the limited partners of the GmbH & Co. KG were at the same time partners and managing directors of the general partner GmbH. In the opinion of the BFH, the limited partners assume the indirect management service for the GmbH & Co. KG and have in this respect a double position, as organ of the GmbH and at the same time as co-entrepreneurs of the KG. This applies in any case insofar as the corporate purpose of the general partner GmbH is limited to the management of the business of the partnership. In the present case, the limited partners did not receive any remuneration from the general partner for their activities as managing directors of the general partner GmbH. In the opinion of the Federal Court of Finance, however, the advance payment to the general partner GmbH also counts as indirect payment to the limited partners for their management of the general partner GmbH. Thus, the advance profit was not recognized as such, but rather the advance profit share was attributed in full to the respective limited partner as income from § 15 (1) Sentence 1 No. 2 EStG and thus subject to the personal tax rate.

Conclusion:

As a result of the case law described above, only a managing director of the general partner GmbH who is not at the same time a limited partner of the KG has the possibility of excluding profits from taxation with the KG by means of an advance profit and of retaining them with the general partner GmbH. This is no longer possible with a managing director who is also a limited partner.