All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Germany: Restrictive application of the German trust model



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 (

Tel: +49 30 2636-5466

Martin Weiss (

Tel: +49 30 2636-2588



More from across our site

This week European Commission officials consider legal loopholes to secure minimum corporate taxation, while Cisco and Microsoft shareholders call for tax transparency.
The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree