How German Tax Law Treats Participation Rights Issued by Corporations

80 Pages Posted: 6 Dec 2009 Last revised: 1 Mar 2013

Date Written: October 18, 2006

Abstract

This research paper elaborates the treatment of participation rights issued by corporations under German tax law and accounting regulations. In particular the study points out differences with regard to equity-equivalent and debt-equivalent participation rights under both regimes. Based on a mathematical-quantitative approach the paper analyses the varying tax burden triggered by differences in legal status and levels of ownership. It also calculates the best investment strategy for each investor. Furthermore the paper examines the contradictory interpretation of German tax and accounting regulations which allows the disclosure of certain participation rights as equity for accounting purposes, while treated as debt for tax purposes simultaneously. It also gives a brief outlook on difficulties in the interpretation of participations rights under cross-border aspects in the German-Swiss DTT. Finally it identifies the implications of the different investment opportunities and recommends participation rights as a useful financial instrument in the aftermath of BASEL II regulations.

Note: Downloadable document is in German.

Keywords: Participation Rights, German Tax Law, Hybrid Capital, Profit Sharing Rights, Rights of Usufruct, Jouissance Right, Genussrecht, Deutsches Steuerrecht, Gesellschafter-Fremdfinanzierung, Corporate Finance, Unternehmensfinanzierung

JEL Classification: K34, G3

Suggested Citation

Jehlin, Alexander, How German Tax Law Treats Participation Rights Issued by Corporations (October 18, 2006). Available at SSRN: https://ssrn.com/abstract=1513198 or http://dx.doi.org/10.2139/ssrn.1513198

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