Until the end of 2004 the so-called trust model was an often used structuring tool in the context of reorganizations and leveraged transactions. Typically, the trust model was based on a structure where assets were transferred to a newly established company in the legal form of a German limited liability partnership (NewCo). A structure was implemented (e.g., conclusion of a trust agreement) under which NewCo was recognized as a separate partnership from a civil law perspective but was ignored for tax purposes. From a tax perspective the transfer of the assets was thus viewed as not existent, i.e., the transfer did neither have any trade tax nor any corporate income tax implications.
As from 2004 onwards the tax authorities shut down the trust model. Based on a decree rendered by the Superior Tax Office of Münster on 16 March 2005 the tax authorities take the view that the partnership to which the assets are transferred qualifies as a separate trade or business within the meaning of the Trade Tax Act. This view entails various open and unsolved questions. Those are eventually the reason why, in practice, the trust model can only be used in exceptional cases and based on a respective binding ruling of the tax authorities.
In its decision dated 3 February 2010 (IV R 26/07) the Federal Fiscal Court now overruled the view of the tax authorities. The Federal Fiscal Court explains in detail why the view of the tax authorities is unlawful and restores the legal situation as it was widely accepted prior to 2004. Thereby, the Federal Fiscal Court provides for the possibility to again use the trust model as an interesting structuring tool (e.g., as alternative to a fiscal unity).
However, so far there is no statement of the tax authorities available as to whether the tax authorities will follow the ruling of the Federal Fiscal Court. While hope remains that the tax authorities will eventually share the view of the Federal Fiscal Court, for the time being trust models should only be implemented on the basis of a binding ruling of the competent tax office.