Consequences of exercising an option
The transition from the taxation of partnerships to corporate income taxation is treated as a change of form. This change of legal form is by the application to exercise the option - without retroactive taxation in order for the process to be tax-neutral. It is particularly relevant that no functionally essential operating principles may be retained.
This includes, for example, the special business assets owned by a partner under civil law. This would (initially) have to be transferred separately to the partnership. As a result of the change of form, analogous to a "real" change of form, there should be subsequent taxation of any retained amounts.
The effects of an option are basically limited to income taxes (corporation tax, income tax and trade tax) for the company and its shareholders. An opting company is taxed in the same way as a corporation, which is basically to be seen separately from the level of the shareholders. After exercising the option, the latter are treated like the non-personally liable partners of a corporation.
Ultimately, all regulations of the Corporate Income Tax Act that refer to corporations or corporations apply. In terms of civil law, however, the company remains a partnership.
The civil law liability of the partners for the corporation and trade tax owed by the commercial or partnership company based on the option remains unaffected. If the partners are unrestrictedly liable under civil law, this also applies to the corporation tax and trade tax debts of the commercial or partnership company. If necessary, the partners can also be liable.
Exercising the corporate income tax option can also have indirect effects on other regulations, provided that they refer to income taxation, even if they are not income taxation regulations. Therefore, regardless of whether there is an accounting obligation under commercial or company law, the profit of an opting company must always be determined by comparing the portfolio. This ensures that all opting companies, including partnership companies, are treated like corporations in this respect.
Application, and reverting to original form
There is no binding period for exercising the option. However, the application for the option back must be submitted in accordance with the rules for exercising the option of corporate taxation before the start of the financial year from which taxation is to take place again according to the transparency principle. This results in a minimum term of one year.
As in the case of exercising the corporate tax option, there is no retroactive tax effect for the option back. The application for the option back must be submitted to the tax office that would be responsible for accepting the corporation tax return of the opting company at the time of submitting the application.
The return option is triggered without the need for an application, even if the conditions for exercising the option no longer apply. This is particularly the case if a commercial partnership is converted into a civil law partnership or if there is no longer any corporation tax liability in the country in which the opting company is managed.
Since sole proprietorships do not exercise the option, taxation in accordance with corporate income tax principles will also be terminated without an application if the partnership is terminated under civil law due to the departure of the penultimate partner. If the penultimate shareholder leaves during the year, a separate transfer balance sheet must be drawn up for this point in time. The return option counts as a change of form, which is taxable.