Structual abuse through share rotation

BFH News 09.03.2023

The aforementioned judgment also deals with important issues in relation to start-ups, such as the (non-)recognition of arrangements, the beneficial ownership of company shares and statements on company valuations.

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BFH, judgment of September 20, 2022, file number IX R 18/21, published on January 26, 2023, preceded by Saxon Fiscal Court of May 6, 2021, file number 8 K 1102/20

Guiding principle

The mutual sale of company shares (so-called share rotation) may result in a loss for the respective seller. Under certain circumstances, this loss cannot be taken into account. If the realization of the loss is based on the agreement of a purchase price that "blatantly" (BFH) fails to reflect the value of the share, this leads to a tax advantage not provided for by law. This then constitutes an abuse of tax planning opportunities pursuant to Sec. 42 (1) Sentence 1, (2) Sentence 1 AO.

Explanation of share rotation

Two shareholders each hold 50% of the shares in a company. Their shares are worth the same amount. In a share rotation, the two shareholders sell their respective shares for the same purchase price. They rotate their shares among themselves. If the purchase price falls short of the respective acquisition costs, a loss on disposal arises that is generally to be recognized (BFH).

Abbreviated reasoning

The argument for the assumption of an abuse of the tax structure is not the rotation of shares as such. For the BFH, the transfer of identical shares on the same day at the same price is probably unproblematic. However, the agreed purchase price must correspond to the actual value of the shares.

In the addressed case, the starting point for the abuse of the arrangement was a purchase price that was probably set far below the value in the context of the share rotation. This is particularly the case if this purchase price is agreed for the sole purpose of realizing an (offsettable) loss. According to the BFH in its recently published decision.

The loss then only represents "the arithmetical result" of the agreement between the shareholders. It is not based on an actual reduction in the value of the company shares. Rather, the loss was artificially created by the share rotation. The reciprocal sale of shares of equal value at the same purchase price does not result in any economic change for the shareholders. If, in addition, this was not desired, this is considered to be an indication of an abuse of rights.

The taxation and also the possible consideration of realized losses are based on the principle of ability to pay. Therefore, a loss caused solely by the chosen structure cannot be taken into account. The loss is then no longer related to a real reduction in the value of the share and also not to a reduced ability to pay on the part of the shareholder.

An abuse of tax structuring may be justified by the presentation of significant non-tax reasons. By taking the loss into account in the tax returns of the shareholders, tax refund claims were to be realized. These were then to be used to repay private loans. This is not a case of significant non-tax reasons to be taken into account.


In the case of impaired investments, the share rotation can be used to realize losses. By means of a loss generated in this way, any tax refund claims arising can be reinvested in the company and thus serve as a building block for financing a distressed company.

This is because the implementation of a share rotation is not per se an abuse of rights. The agreement, must ensurethat the purchase price reflects the actual value of the shares.