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Certified Tax Advisor, Manager, National Office Tax & Legal
Certified Tax Advisor, Director, National Office Tax & Legal/Quality Assurance
The legislator has prescribed a fixed calculation scheme for determining the value of a limited partnership interest for gift tax purposes in Section 97 (1a) of the German Valuation Act (Bewertungsgesetz; BewG):
Against this background, the German Federal Fiscal Court (Bundesfinanzhof; BFH) had to clarify in its decision of July 29, 2026 (case no. II R 15/23) whether the calculation scheme must also be applied strictly according to its wording and whether a negative value of the share in the joint assets must be taken into account when the limited partner has fully contributed his contribution and there is no civil-law supplementary contribution obligation.
In the case in dispute, a sole limited partner of a limited partnership had fully contributed his capital contribution in the amount of EUR 100,000; no supplementary contribution obligation had been contractually agreed. The limited partner was also the holder of a loan claim against the partnership, which was reported in its tax balance sheet as special business assets.
By way of anticipated succession, the limited partner gratuitously transferred to his nephew an interest from his fixed limited partnership interest in the amount of EUR 90,000 and a partial amount of EUR 1,500,000 of his loan claim against the partnership. The tax office determined the value of the interest acquired by the nephew in the partnership’s business assets at EUR 1,500,000.
For the determination of the fair market value of the partnership’s joint assets, the tax office took as a basis the net asset value of EUR ‑629,929. Nevertheless, it set the fair market value of the acquired share in the joint assets at EUR 0 and added to this the transferred share in the special business assets in the amount of EUR 1,500,000. In justification it referred to the fact that the negative value of the transferred share in the joint assets in the amount of EUR ‑566,937 (90% of EUR ‑629,929) could not be attributed to the nephew, since there was no supplementary contribution obligation of the limited partner and the contribution had been fully paid. The fiscal court took the same view.
The valuation scheme of Section 97 (1a) BewG is to be applied according to its wording even when it comes to the valuation of the share of a limited partner in the partnership’s business assets where the limited partner has fully contributed his capital contribution and is not obliged to make supplementary contributions. The wording of Section 97 (1a) BewG does not distinguish between whether the share in the business assets is positive or negative, nor whether a partner is civil-law bound to cover losses or not. The allocation standard clearly regulated in Section 97 (1a) BewG must not be departed from contrary to the wording of the provision even when the partnership interest of a limited partner with a negative capital account is the subject of the valuation; the wording is not to be teleologically reduced.
This is also supported by the fact that Section 97 (1a) BewG represents an unambiguous calculation rule intended to enable the taxpayer and the tax administration to determine the value in a simplified, schematic manner. This objective is achieved with Section 97 (1a) BewG by not having to determine the concrete fair market value in each individual case, but by determining an approximate value of the fair market value by means of a typifying and generalizing method. The view of the tax administration, according to which a limited partner is generally not attributed a negative value of the joint assets if he has fully paid his limited partnership contribution and is not obliged to make supplementary contributions, runs counter to this simplification objective of Section 97 (1a) BewG and would itself lead to an absurd result.
The non-consideration of a negative value of the share in the joint assets would, in the case in dispute, have the consequence that the sum of the values of the shares in a limited partnership to be determined would be higher than the fair market value of the partnership itself. If the business assets of a partnership are worth less in total, this must also be reflected in the valuation of the individual interests. Only a full consideration of both positive and negative value components leads to a consistent overall valuation of the interests in the partnership.
Thus, the following valuation results in the case in dispute: The undisputed fair market value of the partnership’s joint assets among the parties amounts to EUR ‑629,929, which is to be applied at 90% according to the extent of the acquired interest. Taking into account the fair market value of the special business assets in the amount of EUR 1,500,000, the value of the acquired interest in the partnership’s business assets is therefore to be determined at a total of EUR 933,063.
Notice:
The BFH decision clarifies that the statutory wording must be applied stringently and provides greater legal certainty and transparency in the valuation of limited partnership interests, especially in restructurings, rehabilitations or transfers of interests in loss‑making companies. It remains to be seen whether the tax administration will adjust its previously restrictive view as represented in R B 97.5 (2) ErbStR 2019.