Beneficial enjoyment of dividends
February 17, 2011 | 100,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
The goal is to take advantage of the lower tax rate for children and their tax-free allowances without gifting them the capital.
One could or used to be able to provide income to their children through a usufruct agreement. To do this, I think one had to go to a notary to conclude a usufruct agreement. At least with real estate, this was possible.
Can the same model be applied to stocks and their respective dividends?
- Freely traded stocks
- Shares in a family-owned corporation
- Share in a Slovak k.s. (limited liability company)
If so, what formal requirements exist?
Dear inquirer,
Thank you for your inquiry, which I would like to answer based on the information you provided and in the context of your commitment as part of an initial consultation as follows:
You are correct in referring this model to real estate. However, the situation is different with stocks. The Federal Fiscal Court (BFH) decided differently on this matter on 14.12.1976 (VIII R 146/73, BStBl II 1977, 115): "A gratuitous usufruct of securities does not change the attribution of the securities income as income of the securities holder from capital assets. The income is received by the securities holder with their receipt by the usufructuary." Even though the income, in this case of the 19-year-old daughter due to the usufruct, belongs to her, from a tax perspective, the income flows to the securities holder. Even in the case of a paid usufruct, the income is attributed to the securities holder.
The tax authorities have established this view in the Federal Ministry of Finance letter of 23.11.1983 (BStBl I 1983, 508, 512) as follows: The judgment applies to cases of the gratuitous establishment of a usufruct on shares, shares in GmbH's, as well as interests in loan claims and interests as a silent partner. However, if a transfer occurs within the framework of a bequest or reserved usufruct, then the reserved usufructuary or legatee earns the income.
In a more recent judgment on 22.08.1990, the BFH reaffirmed its view (BFH judgment of 22.08.1990 I R 69/89, BStBl. II 1991, 38).
In the case of a usufruct on a capital corporation, here GmbH, the situation may look slightly better. There is a decision by the Münster Fiscal Court dated 14.01.2003 (7 K 2638/00 E, EFG 2003,690). According to this, the structure can be recognized with tax effects if the usufructuary is also transferred the voting rights of the shareholder in addition to the right to receive profits. In this case, I can only advise you to seek a binding ruling from the competent tax office.
Therefore, a usufruct is only interesting for a rented property, even if the building depreciation is lost. According to the above-mentioned BFH judgment and the Federal Ministry of Finance letter, a usufruct on capital assets is not recognized for tax purposes.
In all arrangements for shifting income from parents to minor children, it must be ensured that the contracts are legally valid. A guardian must be appointed, and approval must be obtained from the guardianship court.
I hope my explanations have been helpful to you.
Sincerely,
Ulrich Stiller
Tax advisor/Diplom Business Administrator
