Indirect sales of shares in the context of spin-offs now (once again) detrimental

08/07/2025
Reading time 6 Minutes

BMF corrects UmwStE 2025: Indirect sales of shares after spin-offs are now once again considered detrimental and lead to restrictions in intra-group restructuring. The amendment to marginal number 15.35a of UmwStE 2025 is due to the BMF letter dated August 1, 2025.

The so-called post-demerger disposal restriction pursuant to Art. 15 (2) sentence 2 et seq. UmwStG (German Transformation Tax Act) is known to prevent a book value-neutral spin-off if the spin-off is intended to result in or prepare for a sale to outside parties. The legislature justifies this with the need to combat abuse. The preparation of a sale is considered detrimental if, within five years of the tax transfer date, at least one share in a corporation involved in the spin-off is sold to outside parties. Art. 15 (2) sentence 7 half-sentence 2 UmwStG stipulates that the indirect sale of a significant shareholding in the transferring or acquiring legal entity by an affiliated company is also detrimental if the latter has previously claimed the group exemption under Art. 15 (2) sentence 7 half-sentence 1 UmwStG.

Legal uncertainty in consulting practice

In light of the wording of Art. 15 (2) sentence half-sentence 2 UmwStG in conjunction with sentence 4 UmwStG, indirect sales of shares within the group following a spin-off were initially avoided in consulting practice, as there was a significant risk that the subsequent indirect sale would be classified as detrimental and would therefore lead to a retroactive refusal to carry forward the book value with regard to the spin-off. However, this strict view was questioned in some literature with reference to the teleological interpretation of the norm, as the combination of spin-off and sale in the relevant constellations did in fact not lead to an improvement in tax status. The group parent company could sell the direct shareholding tax-free in accordance with Art. 8b (2) KStG (German Corporate Income Tax Act) even without carrying out an upstream spin-off; therefore, these constellations are not considered abusive and should therefore also lead to a refusal to carry forward the book value. However, due to the generally unclear legal situation, intra-group restructurings involving indirect sales have hardly been implemented.

Opening up through the UmwStE 2025: New structuring options

New structuring options then opened up (surprisingly) in the context of the new Reorganization Tax Application Decree’s publication on January 2, 2025 (Federal Tax Gazette I 2025, p. 92, hereinafter “UmwStE 2025”). The case described in marginal number 15.35a, example a) UmwStE 2025 showed that a spin-off of a part of a business (from GmbH 3) to a sister company within the group (GmbH 4) is (still) possible at book value if (i) the shareholder in the transferring legal entity (GmbH 1) subsequently sells its shareholding to the shareholder (GmbH 2) of the acquiring company and (ii) the group parent company (X-GmbH) subsequently sells its shareholding in the shareholder (GmbH 2) of the acquiring company (GmbH 4) to an outside third party.

This was initially justified in marginal number 15.35a UmwStE 2025, as amended on January 2, 2025, on the grounds that the sale of the stake in GmbH 4 by GmbH 1 to GmbH 2 did not constitute a sale to an outside third party. Surprisingly, however, the subsequent sale of the shareholding in GmbH 2 by the parent company was also considered non-detrimental. The reason stated in this respect was that GmbH 2 had not been involved in the previous spin-off. The post-demerger disposal restriction also did not apply under Art. 15 (2) sentence 7 half-sentence 2 UmwStG, as the parent company itself had not acquired any shares covered by the exemption in Art. 15 (2) sentence 7 half-sentence 1 UmwStG.

The example case under marginal number 15.35a UmwStE 2025, as amended January 2, 2025, initially caused uncertainty in consulting practice, as the non-detrimental nature of indirect sales in group structures in the context of spin-offs was considered an extremely surprising and, ultimately, very far-reaching decision by the tax authorities. However, after initial skepticism, corresponding arrangements were implemented in light of the UmwStE 2025’s clear wording in this respect.

Withdrawn by BMF letter dated August 1, 2025

By BMF letter dated August 1, 2025 (Ref. IV C 2 - S 1978/00051/004/026), however, the tax authorities have now corrected marginal number 15.35a UmwStE 2025 and (once again) denied the book-value neutrality of spin-offs if they are followed by an indirect sale of the shareholding by a group parent company.

This legal consequence now clearly follows from the amended example 1a). The amended version explicitly provides for the non-detrimental nature of an indirect sale by a group parent company to an outside party for the purposes of the post-demerger disposal restriction. This is because the upstream acquisition of the direct shareholding in GmbH 4, which is involved in the spin-off, by GmbH 2 from GmbH 1 was carried out as a (non-detrimental) intra-group acquisition under the exemption provision of Art. 15 (2) sentence 7 half-sentence 1 UmwStG. However, this necessarily also resulted in the subsequent indirect sale being covered by Art. 15 (2) sentence 7 half-sentence 2 in conjunction with Art. 15 (2) sentence 2 in conjunction with sentence 5 UmwStG and therefore being detrimental for the purposes of carrying forward the book value.

This is justified in the introductory section to marginal number 15.35a UmwStE 2025, as amended August 2, 2025, with a general reference to the prevention of circumvention arrangements.

Implications for practice

In practice, this leads to a (renewed) restriction on intra-group restructuring, as indirect share sales following book value-neutral demergers must now be avoided again. As the change introduced by the BMF letter applies to all open cases, restructuring measures carried out at book value at the beginning of this year with reference to the example case under marginal number 15.35a UmwStE 2025, as amended January 2, 2025, are also affected by the change in the administrative opinion. This now results in a retroactive disclosure of the undisclosed reserves retained in the spun-off part of the business.

It is very likely that the courts will have to deal with such cases in the not-too-distant future; in particular, the application in all open cases is likely to cause disputes, as all restructuring measures carried out with reference to the old version are unlikely to be legally binding in practice. In this respect, it remains to be seen whether the Federal Fiscal Court will side with the taxpayers or with the tax authorities.