In the case of a merger, the assets of the transferring company are subsumed into the acquiring company. Unlike a contribution of business assets in the context of singular succession, a transfer by way of universal succession is also permissible when it is done retroactively (Section 24( 4), Section 20(5) and (6) the German Transformation Tax Act). The consequences that this has for determining taxable income in the year of the merger have been made very clear in the BFH ruling of 14.3.2024 (case reference: IV R 6/21). The case concerned the assets of a transferring KG [German limited partnership]. Its assets were merged by notarised agreement (July 2015) into an affiliated partnership that was identical in terms of participation via a transfer in return for granting company membership rights. The business assets were transferred at carrying amounts in accordance with German commercial and tax law that were consistent with the closing balance sheet of the KG as at 31.12.2014. The acquiring company applied to offset the losses of the transferring KG with its own profits for 2014. Neither the local tax office nor the tax court approved the application. The BFH was likewise of the opinion that not allowing the losses to be offset in the year of the merger had been right and proper.
While the tax implications are backdated to the effective date of the transfer for tax purposes and the transfer of earnings arises in the year in which this effective date lies, nevertheless, earnings are only allocated on the effective date of the transfer in accordance with German commercial law. This means that the tax perspective is retrospective while the financial reporting only applies from the specified transfer date.