BFH ruling IV R 20/23: "Contribution quoad sortem" – No special operating profits in the case of contributions based on value

On December 2, 2025, the Federal Fiscal Court (BFH, IV. Senate) ruled in judgment IV R 20/23 on how the tax consequences of a "contribution quoad sortem," i.e., a contribution based on value, should be treated. The focus was on the question of whether special operating profits of the shareholders are to be recognized in the event of a transfer of shares in a general partner GmbH to a GmbH & Co. KG in the event of a subsequent sale or transfer free of charge.

Background and dispute
The dispute involved a GmbH & Co. KG (limited partnership), whose limited partners were obliged under the partnership agreement to contribute their shares in the general partner GmbH "at value" to the partnership. These shares were reported in the joint assets. In subsequent years, the limited partners sold or transferred individual shares in the general partner GmbH. The tax authorities regarded this as special operating profits for the shareholders and made corresponding findings in the profit assessment and trade tax assessment notices.

Legal action was taken against these notices. The tax court had largely upheld the appeal. The tax office appealed against this decision.

The dogmatic principles: What does "quoad sortem" mean?
The Federal Fiscal Court once again presented the various forms of contribution in a differentiated manner and worked out their tax consequences:

• "Quoad dominium" – Transfer to ownership

  • Here, ownership of the item is transferred to the company.

  • Subsequent sales result in a joint profit for the company; no special operating profits for the shareholders.

• "Quoad sortem" – Contribution according to value

  • Ownership and civil law ownership remain with the shareholder, but the value of the contributed asset is allocated to the company in the internal relationship.

  • This form of contribution also does not result in any special operating profits for the shareholder, but at most in profits for the company.

• "Quoad usum" – Contribution for use

  • The asset will remain in the shareholder's business assets (e.g., special business assets I).

  • Sale or withdrawal may lead to special operating profits for tax purposes. 
    These dogmatic distinctions are not a theoretical detail: the correct classification determines whether taxable profits are to be recognized in the partnership or by the individual shareholder in subsequent transactions.

Key messages of the BFH decision
The BFH summarizes its decision in three key principles:

1. Contribution "quoad sortem" does not result in special operating profits
   – If an asset is contributed to a partnership at its value, the subsequent transfer (whether for consideration or free of charge) does not result in a special operating profit for the partner, but at most a profit at the level of the partnership's joint ownership.

2. Shareholdings can be special business assets I
   – In individual cases, a shareholder's (e.g., a limited partner's) shareholding in a corporation (e.g., the general partner GmbH) can be classified as arbitrary special business assets I – even if it is a capital shareholding.

3. No withdrawal solely due to a change in the type of income
   – The mere fact that a shareholder later declares surplus income (e.g., from capital assets) instead of business income does not constitute conclusive evidence of a withdrawal. A clear "intention to withdraw" is required for a withdrawal to be relevant for tax purposes.

Practical significance for tax consulting
The ruling provides important guidance for tax practice:

1. Design risks associated with contribution obligations
Companies and advisors should examine the actual or intended form of contribution, particularly if the articles of association contain a contribution obligation. The accounting treatment in the joint assets alone cannot determine whether a contribution has been made "quoad sortem"/"quoad dominium."

2. Correctly allocate special business assets
Under certain conditions, equity investments—for example, in a general partner limited liability company—can also be discretionary special business assets I of the shareholder. It is crucial to carefully examine whether these assets are objectively suitable for serving the partnership's business.

3. Distinction under withdrawal law
The ruling makes it clear that simply declaring income from capital assets instead of current profits does not automatically lead to the tax-relevant withdrawal of an asset. As the Federal Fiscal Court emphasizes, what matters is a clear intention to withdraw.

Conclusion
With its ruling IV R 20/23, the Federal Fiscal Court provides important clarification on the tax treatment of contributions based on value ("quoad sortem"). The decisive factor is that in such cases, no special operating profits arise for the shareholder; rather, any profits must be recorded at the level of the partnership's joint ownership.

Co-author: Filip Stojanoski (dual student, tax)