Comparison of the Preferential Treatment of Retained Earnings with the Option Model for Family Partnerships

Abstract

The different taxation concepts of partnerships and corporations in Germany lead to systematic disparities and sometimes significant differences in tax burdens, particularly in the case of profit retention. However, legislators are increasingly pursuing the goal of harmonization through tax concessions and options for partnerships. In addition to the preferential treatment of retained earnings in accordance with Section 34a EStG, from 2022 a partnership can be taxed in accordance with the provisions for corporations by means of the new Section 1a KStG. This paper examines the benefits of both options for the primary target group - i.e. "family partnerships". In doing so, the special tax requirements and needs arising from the typical characteristics of family partnerships are defined. It becomes clear that the legislator’s aim of achieving taxation that is neutral in terms of legal form cannot be achieved in its current form.

Keywords: § 1a KStG; § 34a EStG; family business; option model; preferential treatment