Effective January 1st, 2024, the German legislator has revised the rules on the income assessment procedure for partnerships with legal capacity. While the income assessment procedure under previous law was a genuine obligation of the German resident partners, the updated legislation shifts this obligation primarily to the partnership itself, i.e. the legal representatives of the partnership.
Background
Following the tax transparency concept for partnerships for income tax purposes, it is generally required that the taxable income attributable to each partner is determined and allocated within a so-called 'separate and uniform income determination' ("partnership tax return"), which is generally due on an annual basis. The resulting income assessment serves as the basis for the partner's personal tax assessment. Foreign partnerships, for instance fund- or pooling partnerships in the form of a limited partnership, may also be required to file a partnership tax return in Germany, if more than one partner are tax-resident in Germany.
Under previous law, the extent of the partnership's own obligations, especially in cross-border situations, were not entirely clear. The new legislation, stipulated in Sec. 181 para. 2 of the German Fiscal Code (Abgabenordnung - AO), now clarifies that it is the primary obligation of the partnership itself to meet the partnership tax return filing requirement in Germany. The German resident partners themselves remain subordinately responsible for filing a partnership return.
The legislative change affects partnerships that have a legal capacity from a German tax perspective, as defined in Sec. 14a AO. Generally, both domestic (e.g. a German KG or OHG) and foreign commercial partnerships should have legal capacity for this purpose, but foreign partnerships should be reviewed on a case-by case basis. For partnerships with legal capacity, the legal representatives are generally responsible for the fulfillment of its tax obligations.
The new rules generally apply to partnership tax returns that are filed as of January 1st, 2024.
Practical Impact
The transfer of the primary filing obligation to the partnership practically means a higher responsibility for the legal representative(s) of the partnership, for instance the general partner (GP). The law makes no distinction as to whether a representative is resident in Germany or abroad. Accordingly, also representatives of foreign partnerships with no own tax links to Germany should be aware of potential filing requirements if there are more than one German resident partner and be prepared to cooperate accordingly in the tax declaration process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
