Germany: Discussion draft of proposed changes to taxation of partnerships to conform to partnership modernization law

Partnership modernization law scheduled to become effective 1 January 2024

Partnership modernization law scheduled to become effective 1 January 2024

The Federal Ministry of Finance (BMF) released a discussion draft of proposed changes to the taxation of partnerships in order to conform with the partnership modernization law that is scheduled to become effective 1 January 2024. 


The principle change under the partnership modernization law is that associations of persons with legal capacity (including general partnerships (OHGs) and limited partnerships (KGs), but excluding, for example, communities of heirs) may be treated as the owner of the partnership’s assets (rather than the assets of the partnership being treated as jointly owned by the associated persons).

However, for income tax purposes, the joint ownership principle continues to apply and the basic principle of transparent taxation is retained. Assets belonging to a partnership with legal capacity will continue to be allocated to the participants on a pro rata basis. Partnerships with legal capacity are deemed to be joint owners and their assets are deemed to be joint owners' assets for purposes of income taxation.

Discussion draft

The discussion draft focuses on procedural adjustments, particularly in the Tax Procedure Law (AO), and includes the following measures:

  • The legal representatives of associations of persons with legal capacity would be required to fulfill their tax obligations, and no longer their managing directors. The declaration obligation for the separate assessment would primarily lie with the association of persons with legal capacity instead of with each participant in the assessment. Accordingly, the association of persons would also be primarily liable for the late payment surcharge. All administrative acts and notifications related to the separate assessment procedure and the administrative appeal procedure would be notified to the association of persons with legal capacity with effect for and against the participants in the assessment. Thus, it would no longer be necessary to designate a joint receiving agent. Against the separate assessment, only the association of persons with legal capacity would be authorized to lodge an administrative appeal, and no longer the managing director. In the Tax Court Code (FGO), the right of action would be adjusted accordingly, so that associations of persons with legal capacity could file an action themselves.
  • A new provision would be added to the AO regarding tax administrative acts to dual-resident corporations. A corporation with its registered office in a third country and its place of management in Germany would be the addressee of tax administrative acts, irrespective of the civil law classification (so-called registered office theory, according to which the law of the country in which the company has its actual registered office applies). This would apply to the extent the corporation itself is liable for tax (e.g., in the case of corporation tax, trade tax and value added tax (VAT)). However, states or territories for which the so-called foundation theory (applicability of the legal system of the founding state) applies on the basis of intergovernmental agreements would not count as third states. Such dual-resident corporations would be treated like comparable domestic corporations with regard to legal representation and capacity to act in the tax procedure.

Next steps

The discussion draft has not yet been officially published by the BMF. It is possible that the public will be given the opportunity to comment on the discussion draft before the official legislative process begins, which usually starts with the publication of a draft bill.

Only after publication of a draft bill and subsequently a government bill will the Federal Council have the opportunity to comment on the bill. This will be followed by the resolutions of the Parliament and the Federal Council. The legislative process is not expected to be completed until the second half of the year.

Read an April 2023 report [PDF 367 KB] prepared by the KPMG member firm in Germany



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