Zebra Partnership (Zebragesellschaft): Meaning, Taxation and Obligations

• The name derives from the fact that one and the same set of facts gives rise to different categories of income in a “striped” manner – surplus income (Überschusseinkünfte) for some partners, profit income (Gewinneinkünfte) for the others.
• A zebra partnership (Zebragesellschaft) is an asset-managing partnership (vermögensverwaltende Personengesellschaft) whose interests are classified differently in the hands of the individual partners – in part as private assets (Privatvermögen), in part as business assets (Betriebsvermögen).
• The income is treated differently depending on the partner: where the interest is held as private assets, the income constitutes surplus income; where it is held as business assets, the tax rules governing profit income apply.
• The zebra partnership itself remains asset-managing and is not taxed; only the amount of the income is determined at the level of the zebra partnership. The differing tax treatment takes effect only at the level of the respective partner.

What is a zebra partnership (Zebragesellschaft)?

A zebra partnership is an asset-managing partnership (vermögensverwaltende Personengesellschaft) – typically a GbR or an asset-managing KG – in which there are both partners who hold their interest as private assets (Privatvermögen) and partners in whose hands the interest forms part of business assets (Betriebsvermögen). Since the partnership itself is asset-managing and therefore does not carry on a trade for tax purposes, the income generated would in principle be treated uniformly as surplus income (Überschusseinkünfte) – for example income from letting and leasing or from investment capital.

• Reclassification of the income: For those partners who hold their interest as business assets, however, a special rule applies: in their hands the income from the interest is reclassified as trading income by virtue of its attribution to their personal business activity, whereas for the privately participating partners it continues to be surplus income.
• Legal consequence: The most important legal consequence of this constellation is that, while the uniform and separate assessment of the income (einheitliche und gesonderte Feststellung) continues to be carried out at the level of the partnership, the reclassification as trading income for the commercially participating partners takes place, as a matter of principle, only at the level of their own assessment and not already in the partnership’s own assessment procedure.
• Example: A GbR lets a plot of land and thereby generates income from letting and leasing. If one of the partners is a GmbH, or if a private individual holds the GbR interest in his or her sole proprietorship, the proportionate income is recorded as trading income in the hands of that partner, whilst the private co-partner continues to be taxed on income from letting and leasing. It is this “striped” splitting of one and the same economic set of facts into “white” income from letting and leasing and “black” trading income that has given the zebra partnership its name.

How is a zebra partnership treated for tax purposes?

The zebra partnership itself is not treated as a separate taxable entity for tax purposes, since partnerships – unlike corporations – are not subject to income tax or corporation tax in their own right. What matters instead is how the income generated by the partnership takes effect in the hands of each individual partner according to that partner’s personal tax situation.

In practice this becomes apparent above all at two points:

• Determination of the income: First, in the determination of the income, since surplus income is in principle governed by the cash-receipt principle under § 11 EStG – an item of income therefore only becomes relevant for tax purposes once it has actually been received – whereas trading income is regularly accounted for under the realisation principle, with the result that a receivable that already exists but has not yet been paid can be recognised in profit.
• Valuation: Second, the difference becomes apparent in the valuation of the partnership’s assets: whereas in the case of surplus income there is no obligation to prepare accounts and increases in the value of the assets remain in principle irrelevant for tax purposes, in the case of commercially participating partners a participation in hidden reserves or an obligation to draw up a separate tax balance sheet or supplementary computation (Vorrechnung) may arise – a formal obligation to prepare a special balance sheet as in the case of a genuine co-entrepreneurship does not exist, since the zebra partnership is precisely not such an entity; the supplementary computation is nevertheless needed in practice so that the commercially participating partner correctly records his or her income under the rules governing the determination of profits within business assets, and it is typically reflected by way of a carrying amount for the participation under the mirror-image method (Spiegelbildmethode) in that partner’s own tax balance sheet. Increases in value can of course also be relevant in the case of surplus income: if, for instance, the zebra partnership disposes of a property within the ten-year speculation period of § 23 EStG, the privately participating partner must likewise tax his or her share of the capital gain as a private disposal transaction. For the commercially participating partner, by contrast, this tax exemption after expiry of the period does not apply in any event.

The upshot is that, for one and the same economic transaction – the same rental income, say – different points in time and different methods of recognition for tax purposes may apply to different partners of the same partnership. This splitting calls for careful partner-specific preparation of the figures so that each participant can correctly enter the category of income applicable to him or her in his or her own tax return.

What are the implications of a zebra partnership?

For the zebra partnership itself, this constellation gives rise to additional organisational obligations, since the income must be prepared not uniformly but on a differentiated basis according to the tax classification of the respective partners.

• Parallel determination of income: In practice this means that the zebra partnership must effectively prepare two computations alongside one another – a surplus computation for the privately participating partners and a determination based on accounting principles for the commercially participating partners, from which their proportionate trading income can be derived.
• Documentation of the participation arrangements: Since the tax treatment depends on the individual attribution of the interest in the hands of each partner, the partnership must carefully document the respective allocation (private or business assets) and keep it continuously up to date where the partner structure changes.
• Coordination with the partners: Since the actual reclassification of the income takes place only at the level of the individual partners, the zebra partnership should make all the information necessary for their own determination of profits available to the commercially participating partners in a structured form, for example details of outstanding receivables or proportionate hidden reserves. In practice, alongside the result under the cash-basis income statement (Einnahmen-Überschuss-Rechnung, EÜR), the result under the net-assets comparison method (Betriebsvermögensvergleich, BVV) is also reported for information purposes at the level of the zebra partnership, as the commercially participating partners require it for their own determination of profits.

Commercially participating partners should therefore clarify at an early stage which additional information they require from the partnership in order to be able to prepare their own tax return correctly and on time.