Corporates
Hofmann Klafsky & Fertig advises companies throughout their entire lifecycle: from incorporation to satisfaction of ongoing tax obligations to dissolution or winding up (including in the event of sale, restructuring, succession or liquidation). When establishing a new company or making an investment, questions regularly arise as to the appropriate legal structure of that company or investment from a tax optimisation perspective. Similarly, to finance business ideas, traditional start-ups often organise so-called financing rounds, in which investors usually provide the necessary financial resources in return for shares or silent partnerships. Consideration of tax issues is important in all aspects of establishing and running a business or attracting Investment. Hofmann Klafsky & Fertig have the expertise and knowhow to satisfy your tax advice needs.
The interests of companies are often not aligned with those of the tax authorities and this can lead to circumstances where tax related disputes between companies and tax authorities cannot be resolved by way of an ongoing tax field audit and, in order to protect the rights of companies, may instead need to be escalated to appeal or legal proceedings. Further, in some cases, companies may have a legitimate argument for protection or exemption from taxes due to the uncertainty of application of tax laws and regulations based on constitutional or European law grounds. As an example of this, it was unclear for many years as to whether the so-called restructuring clause of sec. 8c para. 1a Corporate Income Tax Act constituted inadmissible state aid under European law and therefore could not be applied. This meant that sec. 8c para. 1a Corporate Income Tax Act was suspended and could not be applied before the Court of Justice of the European Union made its final decision in this case. After years of uncertainty, the Court of Justice of the European Union’s ruling in June 2018 clarified this situation. Pursuant to this ruling, the German tax legislator revised and clarified the application of this restructuring clause to provide further certainty to businesses and individuals. Hofmann Klafsky & Fertig have and will continue to follow the developments in this regard.
When founding a company, questions regularly arise as to the appropriate legal form. Furthermore, investments shall be structured in tax-optimized manner. To finance business ideas, traditional start-ups often organise so-called financing rounds, in which investors usually provide the necessary financial resources in return for shares or silent partnerships.
In the case of cross-border activities of companies, there is basically the opportunity of not recording the same facts but also the risk of the same facts being recorded in two jurisdictions. Germany has concluded conventions for the avoidance of double taxation with most industrialized countries for income tax purposes. These agreements thus form the regulatory basis between the states in order to share the tax substrate between the states in the case of cross-border activities of companies.
The applications are manifold. Essentially, the rights of taxation shall be allocated to one or the other state, for example which portion of the profits of a company shall be allocated to the enterprise and which portion shall be allocated to a permanent establishment; which state has the right to tax dividends, interest or licenses. Can the state of source withhold taxes and, if so, to what extent, and can the taxes withheld be reimbursed or credited in the home country?
When acquiring target companies, investment structures are generally established in which the income from repatriation and sale is burdened as little as possible by taxes. At the target company, the remaining tax risks must be allocated through appropriate tax clauses in the purchase agreement between seller and buyer.
In cases where a company’s equity is almost or already used up and restructuring measures are pending, transaction costs from restructuring such as taxes should be avoided wherever possible in order to protect the proceeds of the company.
This can involve a wide range of tax issues. For example, there are often shareholder loans that shall be restructured in order to prevent the company from over indebtedness. In this context, subordination agreements are regularly concluded or waivers of claims by the shareholders are examined. After the application so-called restructuring decree of the tax authorities was denied by the Federal German Tax Court in 2017 (most recently, for example, Federal German Tax Court resolution of 16 April 2018, X B 13/18), the legislature has now created statutory provisions in sec. 3a ITA and § 7b TTA according to which restructuring profits are not subject to tax under the conditions described therein. However, the provisions of sec. 3a ITA and § 7b TTA can only come into force after approval by the EU Commission.
The reasons are manifold. While in some cases personal liability should be limited to the proceeds of a company, in others the structure should be simplified or prepared for possible purchasers or successors. In cases of reorganization, transaction costs such as taxes should usually be avoided wherever possible. In depth know-how and experience are therefore required, particularly in the areas of reorganisation tax and real estate transfer tax law. Here you can see some examples of reorganizations that we have accompanied for tax purposes.
Hofmann Klafsky & Fertig advises on the identification and quantification of tax risks in connection with acquisitions in order to determine the purchase price and negotiate the tax clause in the purchase agreements. The scope and intensity of the tax due diligence are determined according to the needs of the acquirer. Depending on the scope of the investment and the possible risks associated with it, the results of the tax due diligence can be summarized in so-called red flag reports or in detailed reports.
In some cases, legal uncertainties remain despite thorough research undertaken, for example because there are no relevant or contradictory court rulings or opinions provided by the tax authorities. In order to exclude or at least minimize remaining risks, it may in some cases make sense to apply for so-called binding ruling from the responsible tax office. Binding rulings can only be given if it refers to a planned action and therefore was not implemented yet. The tax office charges a fee for processing the binding ruling.
Services for individuals
Hofmann Klafsky & Fertig has extensive experience in advising individuals in local and international tax matters with a particular focus on the following areas:
With the globalisation of organisations and the increasing cross-border deployment of employees with those organisation, consideration of the cross-jurisdictional tax issues is critical for any expatriate. Hofmann Klafsky & Fertig has expertise in advising private individuals on the taxation of their income, the calculation of tax equalisation procedures/hypothetical taxes, net wage agreements and the taxation of employee remuneration models (e.g. stock options) within the framework of their assignment from Germany abroad or from abroad to Germany. Hofmann Klafsky & Fertig is also qualified to provide specialised tax advice to cross-border commuters, expatriates and relocations as well as wage tax treatment by employer organisations.
Tax provisions are subject to constant changes and reforms. Hofmann Klafsky & Fertig advises individuals on pending changes to the law and is adept at providing clear and concise advice on how the proposed changes and reforms may impact on an individual’s current tax situation and how that individual may be benefitted or, conversely, adversely affected and, in this scenario, the steps that can be undertaken to mitigate tax exposure.
As a consequence of increasingly far-reaching international disclosure practices, information exchanges between tax authorities in different countries and enhanced regulation obliging financial institutions to disclose previously confidential information, the risk that previously undisclosed income or assets will be discovered by the tax authorities and individuals subject to prosecution for tax evasion has increased significantly. Hofmann Klafsky & Fertig is experienced in advising individuals in the preparation of voluntary disclosures (and the circumstances in which they should be considering a voluntary disclosure to tax authorities) and, where necessary, supporting them in criminal tax proceedings.
In some cases, legal uncertainties remain despite thorough research undertaken, for example because there are no relevant or contradictory court rulings or opinions provided by the tax authorities. In order to exclude or at least minimize remaining risks, it may in some cases make sense to apply for so-called binding ruling from the responsible tax office. Binding rulings can only be given if it refers to a planned action and therefore was not implemented yet. The tax office charges a fee for processing the binding ruling.
Hofmann Klafsky & Fertig have a broad range of experience in advising individuals on estate succession planning and inheritance to ensure that assets are transferred and dealt with in the most tax effective manner.
Through its international network, Hofmann Klafsky & Fertig has the experience and knowhow to advise individuals on the tax consequences of relocating their domicile to or from, and declaring their income in or outside of, Germany.
Individuals who intend to move from Germany to another country or move from abroad to Germany often face tax consequences. Hofmann & Fertig advises individuals on the tax consequences of relocating their domicile and declaring their income in Germany. This may apply, for example, in cases in which an individual intending to change its residency holds a significant interest in a corporation. Therefore, the change of residency should be carefully planned in advance and specialised tax advice sought.
If an individual own assets in another jurisdiction or earns foreign income, or if they intend to move from Germany to another jurisdiction or vice versa, international tax provisions will apply and conventions for the minimisation of double taxation between Germany and the respective country must also be taken into account in determining the tax liability of that individual. Hofmann Klafsky & Fertig has the relevant expertise to assist individuals in navigating the complex issues arising from cross-border taxation issues.
Tax assessment notices issued by the tax authorities may not be correct. According to statistics from the German Federal Ministry of Finance, two out of three appeal proceedings in relation to tax assessment notices are successful. Hofmann Klafsky & Fertig can support and guide individuals in the review of their tax assessment notices and, where appropriate, successfully challenging that tax assessment in appeal proceedings or the tax courts.
Tax assessment notices issued by the tax authorities may not be correct. According to statistics from the German Federal Ministry of Finance, two out of three appeal proceedings in relation to tax assessment notices are successful. Hofmann Klafsky & Fertig can support and guide individuals in the review of their tax assessment notices and, where appropriate, successfully challenging that tax assessment in appeal proceedings or the tax courts.
Hofmann Klafsky & Fertig provides tax support to individuals in respect of the acquisition and disposal of real estate (including, income tax, real estate transfer tax and value added tax arising on any such acquisition or disposal), the ongoing determination of taxable income derived from real estate assets, the valuation of real estate assets (in the context of succession planning or otherwise) and the retention of real estate assets through compliant tax minimising vehicles and structures.
Furthermore, Hofmann Klafsky & Fertig can offer viable and effective tax planning solutions for the incurrence of capital expenditure and other improvement costs in relation to real estate assets and suitable tax arrangements for related parties, for example, in the instance real estate assets are rented to family members.
Hofmann Klafsky & Fertig advises individuals on tax-optimised structuring of their affairs.
According to supreme court rulings, it is generally accepted that relatives who typically lack a conflict of interests are allowed to structure their legal relationships among themselves as favourably as possible from a tax perspective and that the motive of saving taxes does not yet make a tax structure inappropriate. A legal form is usually only inappropriate if the taxpayer does not use the form envisaged by the legislator to achieve a certain economic goal, but instead chooses an unusual or artificial way in which the goal is not to be attainable according to the assessments of the legislator.
If an individual receives severance payments as a result of redundancy or employer restructuring programmes, these severance payments are subject to special tax treatment in Germany. Hofmann Klafsky & Fertig are specialised in advising individuals on the taxation of severance payments, including in the event an individual is proposing to change their country of residence.
Private individuals with a high income, in particular, individuals with an annual income in excess of EUR 500,000 may be subject to a tax audit by the tax authorities. Hofmann Klafsky & Fertig can support and guide individuals during a tax audit to ensure that their rights and interests are protected.
Succession planning
Hofmann Klafsky & Fertig accompanies you as an entrepreneur or individual throughout Germany in the (tax-optimised) transfer of your company assets or private assets during your lifetime or from death. After identifying your wishes and needs, Hofmann Klafsky & Fertig will show you tailored solutions for the transfer of your assets and implement them together with you. Early planning is essential for a successful handover.
Hofmann Klafsky & Fertig also advises heirs and gift recipients on tax issues following the transfer of assets, e.g. when it comes to preparing tax returns or issues such as inheritance disputes, foreign assets or legacies.
Hofmann Klafsky & Fertig advises you in particular on the following topics:
In some cases, legal uncertainties remain despite thorough research undertaken, for example because there are no relevant or contradictory court rulings or opinions provided by the tax authorities. In order to exclude or at least minimize remaining risks, it may in some cases make sense to apply for so-called binding ruling from the responsible tax office. Binding rulings can only be given if it refers to a planned action and therefore was not implemented yet. The tax office charges a fee for processing the binding ruling.
Hofmann Klafsky & Fertig carries out the valuation of companies for you as an entrepreneur, buyer, seller, heir, donee or as a service for other tax advisers, lawyers or notaries. Different valuation methods are used, such as the simplified capitalized earnings value method (vereinfachtes Ertragswertverfahren), the modified or full IDW S1 valuation method. A complete evaluation according to the standard IDW S1 is often not required. Accordingly, the less complex evaluation methods can often be applied. Upon your request, Hofmann Klafsky & Fertig will first offer you a so-called value indication. The company value is determined according to the simplified capitalised earnings value method and then verified on the basis of the modified IDW S1 method. In many cases this procedure is sufficient and less expensive than a valuation according to IDW S1.
What happens if you suddenly fail as an entrepreneur?
The emergency kit is recommended in case of unforeseen temporary failure or death.
- Important information is often bundled in one person and is usually not documented. In the event of a failure or death of the entrepreneur, successors or representatives often find it difficult to obtain the necessary information and documents. This could jeopardize the continuation of the company. There may be a risk of customer churn or a reduction in the value of the company. To prevent this, it is advisable to create an emergency case.
- The emergency kit contains all important information and documents such as information about a possible will, appointment of a representative, passwords, important contracts, customer information.
- The emergency kit can, for example, be set up in a physical folder but also in a digital form.
An emergency case is successful when it is tailor made and thus covers all the special features of the individual case. Based on experience, the creation of an emergency kit during the lifetime of an entrepreneur is generally an easy and routine task whilst it can be a very challenging and time-consuming effort for the representatives or successors. Further, there is also the risk of company downtime.
We will be happy to support you in creating your individual emergency kit.
Hofmann Klafsky & Fertigsupports e.g. tax consultants, lawyers or notaries in tax issues in connection with inheritances and gifts.
Hofmann Klafsky & Fertig provides a “sample death” for you. Even if it sounds a bit macabre at first, it helps to simulate the inheritance and the resulting tax consequences in order to uncover any need for action. If there is a sudden loss of an entrepreneur or also of a private person, undesirable tax or inheritance consequences may occur, which have so far remained unobserved.
In a first step your current situation will be determined; in this process your financial situation (assets, insurances, debt, etc.) and any available succession measures will be identified. On this basis you will be shown the inheritance law and inheritance tax consequences. Often your intention on how your assets will be transferred is not reflected in this result. On this basis individuals may be unpleasantly surprised if assets were transferred to persons by applicable law which shall not be the case in the view of the decedent.
The findings from the “sample test” are the basis for succession planning. Hofmann Klafsky & Fertig helps you to find tailored solutions that correspond with your will and needs.
Hofmann Klafsky & Fertig prepares inheritance tax returns for you and carries out the necessary valuations of your inherited assets.
Not only since the implementation of the EU Succession Regulation (No. 650/2012) in 2012, there is an increasing number of cases in which not only German inheritance and tax law applies, but also foreign law is involved. This can lead to a bad awakening in the case of international inheritances and gifts, so that in these cases early consideration must be given. Hofmann Klafsky & Fertig advises in cross-border succession planning.
Hofmann Klafsky & Fertig provides advice in the context of cross boarder situations such as children study or live abroad, companies are set-up in a foreign jurisdiction, you receive foreign assets or a relocation of someone’s residency is intended or a second residency abroad is maintained, e.g. in order to spend your old age abroad. Adverse (tax) consequences can occur for example if you established your last will in accordance with German law but spend the majority of your time abroad, e.g. in Spain. Hofmann Klafsky & Fertig advises you in these cases with regard to the tax effects and show you ways in order to optimize your affairs.
Hofmann Klafsky & Fertig will advise you on tax optimized transfers of your private assets. You will be shown options for transferring your assets, such as securities, life insurance policies, real estate, shares in, for example, asset-managing partnerships or family homes, e.g. within the framework of anticipated succession. Your future financial needs should also always be taken into consideration, assets can already be transferred and yet you can still reserve further income from this, for example with usufruct arrangements.
Even if you have no children and thus no direct descendants, or if you do not wish to consider family members who are entitled to inherit by law, Hofmann Klafsky & Fertig will show you options to transfer your accumulated assets so that the assets are ideally not reduced by taxes. In these cases, the establishment of a foundation may be an interesting solution.
Hofmann Klafsky & Fertig also advises future heirs and gifted persons, if you will receive assets and tax related questions arise.
Hofmann Klafsky & Fertig will show you tax planning options for transferring your company assets to the next generation or a nonfamily member. Corporate reorganization may be required, intense discussions with family members or finding a buyer, which requires timely planning.
Hofmann Klafsky & Fertig will show you the tax consequences of your current will or support you in the tax aspects of drafting your will. A large proportion of wills drawn up by individuals themselves are not legally binding because, for example, the required form has not been adhered to. There are often disputes within families because the wording of wills is unclear and thus have to be interpreted. This can lead to long-term disputes. Prominent examples are regularly discussed in the media.
The so called “Berliner Testament”, is often not recommendable from a tax point of view, because inheritance tax is incurred, which could be avoided.
Hofmann Klafsky & Fertig will show you the tax consequences of your chosen or desired matrimonial property regime (Güterstand). Spouses, applying the separate estate (Gütertrennung), cannot benefit from the tax-free equalisation of surplus in the event of inheritance. With the so-called modified joint ownership (Zugewinngemeinschaft), the advantages of a separate estate can often be combined with the tax advantages of a joint ownership.
The so-called “Güterstandsschaukel” is a common model accepted by the tax authorities to transfer assets to the spouse in a tax optimal manner. If, for example, spouse A who lives in the legal matrimonial property regime of the joint ownership (Zugewinngemeinschaft) has assets of 2 million euros and spouse B has no assets and the spouse A would like to transfer assets to spouse B in excess of the tax-free amount of 500,000 euros, gift tax would become due and payable in the event of the transfer. In order to avoid such gift tax, the spouses can change their matrimonial property regime from the joint ownership (Zugewinngemeinschaft) to a separate estate (Gütertrennung) by notarized agreement. Upon this change the surplus of 1 million euros will be transferred to the other spouse in a tax-free manner.
The number of real estate owners in Germany is increasing. Hofmann Klafsky & Fertig supports you in transferring real estate assets held, as private assets or via asset management companies in a tax-optimised manner. You will be shown individual options tailored to your needs, also with regard to the use of the family members as a tax-saving transfer model.
Hofmann Klafsky & Fertig supports you in the valuation of your private assets, such as shares in asset-managing companies or real estate assets, for example in the context of inheritances and gifts or in divorce proceedings.
Expert Opinion Services
Tax issues applying to you or your business are complex, diverse and ever changing, both locally and internationally. We at Hofmann Klafsky & Fertig recognise that you may not have the time or the resources to dedicate to this highly specialised but critically important area of your personal affairs or business so, to ensure that you (or your clients) remain in compliance with applicable tax laws and regulations and, importantly, optimise your (or your client’s) tax position, we offer a broad range of expert opinion services in the following key areas:
- Income tax
- Corporate tax
- Inheritance and gift tax
- Rorganization of companies
We provide opinion services to a wide variety of individuals and businesses, including private individuals, high net worth or sophisticated investors, companies, lawyers, notaries and other tax consultants addressing both German and international tax related matters with our experience extending to:
- Providing one-off or regular bespoke pieces of advice on applicable tax laws and regulations
- Reviewing and providing a second opinion on complicated tax matters
- Conducting or consulting on (internal and external) tax audits
- Delivering expert opinions in tax related investigations or court proceedings
As proven and certified experts in the above fields of practice, we are committed to providing quality, commercial and pragmatic expert tax advice and opinions specifically tailored to your (or your client’s) needs. As a boutique practice, we are also renowned for being adaptable and versatile in the manner in which we are mandated and ultimately deliver our services and would open to working directly with you or together with your other advisers or consultants.
We would welcome the opportunity to discuss your expert tax advice / opinion needs with you on a no obligation basis so please contact us.
