Assessment of investments
March 25, 2010 | 20,00 EUR | answered by Matthias Wander
A sole proprietorship in Germany holds a stake of over 1 euro (2 shareholders) in a corporation in a European country. Meanwhile, the corporation has expanded by acquiring a piece of land and retaining profits. How should the stake be valued upon the dissolution of the sole proprietorship (1 euro or are hidden reserves uncovered, as the market value of the stake would actually be higher)? Would it be advisable to close the sole proprietorship so that the distributions from the corporation are taxed not as business income but as investment income, or would this uncover hidden reserves in the stake?
Dear questioner,
Thank you for your inquiry, which I would like to answer based on the information provided and in the context of your involvement in an initial consultation.
Once the participation is withdrawn from the business assets, hidden reserves must be uncovered. However, a transfer from one business asset to another of the same taxpayer is done without uncovering hidden reserves.
As long as the participation remains in the business assets, profit distributions are treated as income from commercial operations. To generate income from capital assets, it is necessary to withdraw the participation from the business assets (if this is even possible). However, in doing so, the hidden reserves are uncovered.
I hope this overview has been helpful to you.
Sincerely,
Wander
Tax consultant
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