Profit sharing when joining an asset management company under civil law

A change in a hitherto valid profit allocation formula for an asset management company under civil law (Gesellschaft bürgerlichen Rechts, GbR) such that partners who join the GbR in the course of its financial year will have income surpluses or income-related expense surpluses – which are attributable to the new partner’s stake in the business – allocated for the entire financial year, has to be recognised under tax law. According to a new ruling by the Federal Fiscal Court (Bundesfinanzhof, BFH), this shall in any case apply where such a profit allocation that differs from the ownership structure is put in place for the future and approved by all the partners. The reason for the divergence in the profit allocation has to be related to the ownership structure and may not constitute an abuse of the law.

Loss allocation in the case of a change of partner

In a case heard by the BFH in autumn 2018, three partners each held a one-third stake in a GbR that was generating income from letting and leasing. One of the partners sold his stake to a new partner who then joined the company. Under the notarial agreement, concluded in October 1997, the transfer of the partner’s rights upon payment of the purchase price was supposed to happen in that same year. However, the purchase price was only paid on 30.6.1998. Therefore, the change of partner did not occur until that point in time. In 1998, the GbR generated a loss in the amount of approx. € 0.6 m. The tax office allocated this loss to the remaining partners at a third each and one sixth of the loss each to the partner that had left and to the new one who had joined. The subsequent legal action brought before the tax court by the partner who had newly joined – where he sought to have a third of the loss for the entire financial year allocated to him – was successful.

Reasons for the decision

The BFH, in it ruling from 25.9.2018 (case reference: X R 35/17) confirmed the decision of the tax court and awarded the new partner who had joined the company the loss for the entire 1998 financial year that corresponded to the size of his stake. In the case of an asset management GbR, the allocation of profits or losses should generally be based on the size of the stakes in the company. The claimant’s stake would accordingly have been just one sixth because his one-third stake had only existed for half a year.

However, according to the BFH, the partners may deviate from this statutory provision, within very narrow limits, on a contractual basis. The precondition is accordingly that such a profit allocation, which differs from the ownership structure, has to be put in place for future financial years and approved by all the partners. Moreover, the reason for any changes has to be related to the ownership structure and may not constitute an abuse of the law. If these conditions are complied with then partners who join in the course of the financial year may also participate in the profit or loss that was generated prior to them joining the company.


Please note: The BFH has loosened its previous interpretation of the law in this respect. However, it did not decide whether or not, in the case where, under the German Law of Obligations, an asset management partnership changes its profit/loss allocation during the course of a financial year and applies this retroactively to the start of the year, this should be recognised for tax purposes, too.


RA [German lawyer] Johannes Springorum

From: PKF newsletter 07-08/2019