The Bundestag has passed the Corporate Income Tax Modernization Act (KöMoG). In addition to further changes to corporate income and conversion tax law, this law includes in particular the so-called option model. Compared to the first draft of the law, there have been some further changes.
Introduction of the option model
On May 21, 2021, the Bundestag passed the Act to Modernize Corporate Income Tax Law. The centerpiece of the so-called KöMoG is the introduction of the option model. This allows commercial partnerships and partnership companies to be taxed like a corporation on application. We have already reported on the bill here. In a statement, the Bundesrat criticized the draft law as not being sufficiently legally secure and called for extensive amendments. In the version now passed by the Bundestag, some of these criticisms have been partially taken into account and, in particular, an amendment to the real estate transfer tax law has been included to prevent a structure that is already emerging.
The main changes in detail
Form: The application must now be submitted electronically to the tax authorities (like a tax return) in accordance with the officially prescribed data record.
Deadline: The application must be submitted no later than one month before the beginning of the fiscal year from which the option is to apply. The same applies to the re-option.
The law does not provide for a time limit on the option. However, in its response to the Bundesrat's statement, the German government clarified that it assumes that the seven-year lock-up period under conversion tax law applies.
Other amendments relate to the accrual of an opting company upon the withdrawal of the penultimate shareholder and the prevention of untaxed income in an international context.
One significant change relates to real estate transfer tax law. The original draft law exclusively concerned income tax, corporate income tax and trade tax law, but not real estate transfer tax law. This would have made it possible to transfer the shareholder's real estate to an opting real estate limited partnership without incurring real estate transfer tax and to take advantage there of the benefits of retained corporate income taxation, in particular the extended trade tax reduction. However, the transfer to a "real" corporation is generally not achievable without real estate transfer tax. With the amendments, the legislator has put a stop to this structuring approach. In the case of a transfer to a partnership that has already opted, the real estate transfer tax benefits can now be claimed at the earliest five or ten years after the option. If the real estate is transferred first and then opted, real estate transfer tax is triggered retroactively within the aforementioned period. The corporate income tax option is thus also treated in the same way as a genuine change of legal form for real estate transfer tax purposes.
Approval of the Bundesrat - First-time application
The Bundesrat is scheduled to pass a resolution on the Act on June 25, 2021. If the Bundesrat approves the law, the option can be exercised for the first time for fiscal years beginning after Dec. 31, 2021. Consequently, if the option for corporate income tax is to be exercised for the fiscal year 2022 corresponding to the calendar year, the application must be submitted electronically to the tax authorities by the end of November 2021.