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German Public Auditor, Certified Tax Advisor, Partner, Tax & Legal
Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal
In its decision dated July 29, 2026 (case no. II R 11/24), the German Federal Fiscal Court (Bundesfinanzhof; BFH) ruled on a scenario that is not uncommon in practice and clearly illustrates that an approach chosen by the parties and not disclosed may have unexpectedly serious tax consequences. A GmbH’s acquisition of real estate from a person related to its shareholder at an inflated purchase price not only had income tax consequences because it constituted a hidden profit distribution but also gave rise to gift tax and real estate transfer tax.
In 2011, the partner of the sole shareholder and managing director of a GmbH sold a developed property to the GmbH for EUR 1.1 million. Real estate transfer tax was subsequently assessed on this acquisition at 3.5% of EUR 1.1 million.
The allegation that the purchase price had been inflated, resulting in both a hidden profit distribution and a gift, led to criminal proceedings against the shareholder and her partner. The Regional Court convicted both of attempted evasion of income tax, corporate income tax and trade tax, or of aiding and abetting these offences. Based on four expert opinions, the court assumed that the property had an actual value of no more than EUR 480,000, construed in the defendants’ favour, and that the defendants were aware of this. The excess amount therefore constituted a hidden profit distribution, which had been deliberately concealed by agreeing an inflated “purchase price” in order to reduce the tax burden accordingly.
The tax office then assessed gift tax of EUR 175,590 against the partner because the property was attributable to a value of only EUR 480,000 and the excess amount was to be treated as a gratuitous transfer. The GmbH subsequently sought an amendment of the real estate transfer tax assessment, which had in principle become final. It relied on the statutory rule that although the gratuitous transfer of real estate may trigger gift tax, no real estate transfer tax is incurred to that extent. The two taxes are therefore mutually exclusive in this respect.
Inheritance and gift tax, on the one hand, and real estate transfer tax, on the other, are generally subject to a rule preventing overlap and establishing mutual exclusivity. Accordingly, real estate transfer tax is assessed only if no gift tax is levied in respect of the same transaction. In the case at hand, however, there was no gift or mixed gift of real estate. Rather, the gift consisted of a transfer by the GmbH’s sole shareholder to her partner based on a hidden profit distribution. The gratuitous transfer arose because the sole shareholder either disposed of her future entitlement to a profit distribution or made a withdrawal, insofar as the GmbH paid the unreasonable portion of the purchase price to the person related to the shareholder on the basis of the corporate relationship. This reduced the shareholder’s assets and, correspondingly, increased those of her partner as a related person.
The BFH rejected an amendment of the real estate transfer tax assessment. There were no conflicting tax assessments because the rule preventing overlap between real estate transfer tax and gift tax was not affected: real estate transfer tax was levied on the agreed purchase price of EUR 1.1 million as the consideration for real estate transfer tax purposes. By contrast, gift tax related to the transfer resulting from the hidden profit distribution.
Notice
This case illustrates that, particularly in GmbHs with such close personal ties, careful distinctions must be made between the different asset spheres. Transfers of assets should be disclosed for tax purposes from the outset. Only then can their income tax consequences and any potential implications for gift tax and real estate transfer tax be correctly assessed and taken into account at an early stage. The resulting tax burden may be substantial.