How tax structure affects the purchase price at GmbH & Co. KG

When selling a company, every entrepreneur’s focus is on the purchase price. It is the key criterion for deciding whether and under what conditions a transaction makes sense. However, what often goes unrecognized in the sale of GmbH & Co. KGs is that the tax structure of a partnership opens up scope for structuring that can have a direct impact on the achievable purchase price.

While the purchase price in small and medium-sized businesses is usually determined according to traditional valuation standards, tax effects on the buyer's side are often not taken into account. In practice, this means that, particularly in the case of GmbH & Co. KG companies, economically justified purchase price increases are not addressed, even though the buyer achieves considerable tax advantages through the chosen structure. The purchase price appears to be in line with market conditions but does not exploit the economic potential of the transaction.

GmbH & Co. KG: familiar in everyday life, demanding in sales

The GmbH & Co. KG is widely used among German SMEs. Entrepreneurs are familiar with how it works in day-to-day business. However, when it comes to selling, it regularly becomes apparent that its tax system is underestimated.

From a civil law perspective, the transaction qualifies as a share deal. For tax purposes, however, the sale constitutes a disposal of a partnership interest within the meaning of Art. 16 (1) no. 2 of the German Income Tax Act (EStG). This approach fundamentally differs from the taxation of a corporation. Investors and their advisers typically think in terms of classical share deal structures and are often only partially familiar with the transparent taxation of partnerships. At the same time, the GmbH & Co. KG represents a complex tax structure even for many smaller advisory firms, particularly when combined with purchase price mechanics and negotiation strategy.

Due to this particular constellation, it is essential to correctly classify the structure at an early stage and translate it in a way that is understandable for all parties involved.

Asset deal: Tax advantage as an economic factor

From the buyer's perspective, an asset deal structure is generally attractive from a tax perspective. The acquired assets are revalued for tax purposes, hidden reserves are disclosed, and, unlike in a typical share deal, the acquisition costs can be depreciated in the future. This so-called step-up leads to lower tax payments over several years and thus to a real economic advantage.

For professional buyers, this effect is not a tax detail, but rather an integral part of the investment calculation. It influences expected returns, financing models, and ultimately the willingness to pay a higher purchase price – provided the advantage is taken into account in the process.

Seller’s perspective: Why the disadvantage is not the final word

For the seller, an asset deal structure regularly leads to a higher tax burden than the sale of shares in a corporation. This is due to the direct taxation of hidden reserves at the partnership level. However, this additional tax burden is not an isolated disadvantage, but part of an overall economic assessment:

The higher tax burden on the seller’s side is offset by a tax advantage for the buyer. If this advantage is calculated and brought into the negotiations, it can be economically offset by a purchase price premium. The decisive factor is therefore not the isolated tax effect, but whether the structural consequences are fully reflected in the purchase price.

Purchase price logic: calculated as a share deal, implemented as an asset deal

In the SME sector, the purchase price is regularly determined according to share deal logic, for example, on the basis of EBIT multiples. This valuation reflects operating profitability but does not automatically take into account tax effects arising from the transaction structure.

From an economic perspective, it therefore makes sense to reflect the tax advantage of an asset deal in a purchase price premium. This premium is calculated based on the present value of future tax savings the buyer will realize from depreciation of the disclosed hidden reserves.

Depending on the structure, depreciation volume, useful life, and discounting, these surcharges often exceed 10 % of the purchase price determined on a share deal basis and can even reach 20-25 % if there is significant depreciation potential. The specific amount must always be calculated on a case-by-case basis and depends, among other things, on:

• the amount of hidden reserves,
• the tax depreciation period,
• the discount rate to be applied,
• the effective tax burden on the purchasing side.

Against the backdrop of agreed changes to corporate tax rates and widely varying trade tax rates, it is impossible to make blanket assumptions.

Calculate early – otherwise it remains an argument without effect

A common mistake in practice is to address tax implications too late or only in qualitative terms. Without reliable calculations, they remain abstract – and fail to convince either professional buyers or their advisors.

Purchase price premiums can only be successfully enforced if they are presented early on, are mathematically sound, and are comprehensible. Ideally, this should happen before or during the LOI phase. At this point, structures and expectations can still be shaped.

Clear, C-level-ready translations are crucial, especially for international investors. Translating tax implications into economic logic creates understanding – and room for negotiation.

Special provision for entrepreneurs: Art. 34 (3) EStG

For many entrepreneurs, the GmbH & Co. KG offers additional tax leverage. When selling a partnership interest, the reduced tax rate pursuant to Art. 34 (3) EStG may apply under certain conditions. This is possible in particular from the age of 55 or in the event of permanent occupational disability, can be used once in a lifetime, and applies to capital gains of up to EUR 5 million.

In combination with a purchase price premium for an asset deal, this can result in a double economic effect: a reduced tax burden and a higher purchase price.

Entrepreneurial assessment

Asset or share deal structures are not formal alternatives at GmbH & Co. KG, but rather are decisive factors in determining the economic distribution between buyer and seller. It is not the name of the structure that is decisive, but rather its effect.

Professional buyers have M&A departments and advisors with extensive transaction expertise. Sellers often only face this situation once in a lifetime. This makes it all the more important not only to recognize tax implications, but also to incorporate them strategically and financially into the negotiations.