Germany: Restrictive application of the German trust model

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2026

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement


Germany: Restrictive application of the German trust model

schnitger.jpg

weiss.jpg

Arne Schnitger


Martin Weiss

Over the past few years, partnerships have grown in popularity as investment vehicles into Germany. Profit shares are repatriated free of withholding tax as partnerships are treated as transparent for income (corporation) tax purposes, that is the income is taxed at the level of its partners. However, German trade tax levied on business income is owed by the partnership itself, that is the partnership is not transparent for trade tax. Consequently, trade tax losses can only be carried forward by the partnership and cannot be offset against income from other German operations of associated enterprises. To enable offset of the trade tax losses of the German partnership against other trade tax income of the partner, the trust model is frequently used by German and foreign investors. The second partner holds a minor limited partnership share as the nominee of the general partner. In consequence, the partnership ceases to exist for tax purposes (that is, the general partner is subject to tax on the trade tax income) while continuing to exist under corporate law. Accordingly, the partnership's results are mingled with those of the general partner for both trade and income (corporation) tax.

Such partnerships being set up according to the trust model trigger various questions, for example regarding their entitlement to a tax-free reorganisation under German tax law. A provincial tax directorate has issued a new directive according to which a merger of a company into a partnership deemed as being held by a single partner cannot be conducted tax-free for failure to meet the condition in the Reconstructions Tax Act that the merged assets be taken up by the surviving entity. Even though this interpretation of the law is questionable, it may make a trust partnership somewhat inflexible as a vehicle for further operations.

Arne Schnitger (arne.schnitger@de.pwc.com)

Tel: +49 30 2636-5466

Martin Weiss (martin.weiss@de.pwc.com)

Tel: +49 30 2636-2588

PwC

Website: www.pwc.de

more across site & shared bottom lb ros

More from across our site

Historical claims involving KPMG Australia's tax practice have surfaced as the firm battles a separate parliamentary inquiry into its handling of whistleblowers
While AI is revolutionising tax work, it is also reshaping clients’ willingness to pay for advice and their perception of the value generated by tax advisers
From Dhruva Advisors to Svalner Atlas, Ryan is growing fast. Tom Shave discusses consolidation, competition, and tax’s private equity debate
Awards
ITR is delighted to reveal the shortlisted nominees for the Middle East Tax Awards
The UK has confirmed its approach to the OECD’s side-by-side deal, but US-parented groups may find pillar two compliance remains far from straightforward
Fragmented pillar two taxation and increased use of AI by tax authorities have left clients fearful of heightened disputes exposure
Grant Thornton Advisors’ latest acquisition has produced the fifth-largest US advisory firm by revenue, but there’s still a clear gulf between it and the big four
Crowe joins Grant Thornton, WTS and Ryan in attracting PE investment, suggesting that dealmakers remain bullish on the tax advisory sector
HMRC expects advisers to meet ever-higher compliance criteria. After 24 consecutive qualified audit opinions, many will ask whether HMRC should hold itself to the same standards
The purchase of Marosa represents the second major tax tech consolidation this week, raising questions of a broader industry trend
Gift this article