The tax authorities (decree FinMin. Schleswig-Holstein of 20.08.2024, DB 2024 p. 2196) after publication of the BFH ruling of 09.11.2023 (IV R 9/21) in the BStBl. II 2024 p. 510 on the tax treatment of “earn-out payments” (variable purchase price payments) in the context of the sale of company shares.
What is an earn-out payment?
In practice, it is not uncommon for the negotiating parties to the purchase agreement to have different ideas about the value of the company, which ultimately cannot be fully clarified during the purchase price negotiations. For this reason, variable purchase price components are regularly agreed on the basis of different key figures (e.g. EBITDA, EBIT, turnover, cash flow). It is not uncommon for a transaction to be saved from failure in this way. A typical case of a variable purchase price is a so-called
Inflow taxation for earn-out clauses with variable purchase price amounts
In its ruling of 09.11.2023, the BFH decided that, in the case of the sale of a co-entrepreneur’s share within the meaning of Section 16 para. 1 sentence 1 no. 2 EStG, in addition to profit- and turnover-dependent purchase prices (see BFH ruling of 14.05.2002 – VIII R 8/01, BStBl. II 2002 p. 532; H 16 para. 11 “Profit- or turnover-dependent purchase price EStH) also for so-called earn-out clauses, in which the occurrence of the resulting variable purchase price components is uncertain both in terms of reason and amount (so-called “earn-out clauses”). non-retroactive earn-out clauses) are only taxable at the time of receipt as subsequent business income in accordance with Section 16, Section 24 no. 2 EStG (so-called mandatory taxation of receipt).
In the opinion of the tax authorities, this should also apply to relevant cases of the sale of shares in corporations by a natural person in accordance with Section 17 EStG.
In our opinion, this also applies to the sale of shares in corporations by a corporation in accordance with Section 8b (2) KStG .
Do you have any questions on this topic?
Retroactive earn-out clauses with purchase price amounts already fixed
In para. 29 of the BFH ruling of 09.11.2023, the BFH had left open the tax treatment of an earn-out clause in which
This retroactive earn-out clause thus applies the principles of taxation of subsequent purchase price adjustments, according to which a retroactive event within the meaning of Section 175 (1) sentence 1 no. 2 AO exists upon realization and thus the purchase price is to be taxed retroactively in the year of the actual sale and not at the time of receipt. This provides certainty , particularly in cases where the taxable Benefit according to § 16 para. 4 or § 34 EStG in the year of the sale. This is because this purchase price payment has a retroactive effect and is therefore subject to the corresponding tax relief.
Our recommendation
The question of whether tax retroactivity should be sought when agreeing a variable purchase price component in the form of an earn-out always requires advice on a case-by-case basis. If you have any questions on this, please contact us at any time.
The author: Timo Unterberg
Anyone who knows me knows that tax law is my passion! When I am not advising young growth companies and medium-sized corporate clients on restructuring, financing issues or corporate succession, I am on the road as a lecturer in tax consultant training and continuing education. I also regularly write tax-related articles for specialist journals.
