The BFH ruled on 28.09.2022 that under certain conditions an incongruent profit distribution can be recognized for tax purposes even without a corresponding provision in the articles of association.
Profit distributions in practice do not always occur based on the ownership ratios. Tax law allows for the recognition of such incongruent profit distributions. According to the Ministry of Finance, however, this is only possible if a corresponding provision is securely anchored in the articles of association, explains the business law firm MTR Legal Rechtsanwälte, which has a consulting focus on tax law.
Contrary to this view of the tax authorities, the Federal Fiscal Court took a further step with its ruling on September 28, 2022, deciding that an incongruent profit distribution can be recognized for tax purposes even if the shareholders’ meeting makes a corresponding resolution that punctually breaks through the articles of association, unanimously and this resolution cannot be contested by any shareholder (Ref.: VIII R 20/20).
In the underlying case, the plaintiff held a 50 percent stake in a GmbH during the years in dispute from 2012 to 2015. The other 50 percent was held by another GmbH, whose sole shareholder was the plaintiff. The articles of association of the first GmbH did not provide any regulations regarding profit distribution. Consequently, they would have had to be distributed according to the ownership ratios. However, in the years in dispute, the shareholders unanimously passed resolutions whereby pre-distributions were only paid out to the second GmbH.
The tax office viewed these distribution resolutions for the incongruent distribution of the pre-distributions as null and void under civil law and subjected the half distribution amounts to taxation for the plaintiff as income from hidden profit distributions.
The plaintiff successfully opposed this. The BFH clarified that the unanimously adopted distribution resolutions should be regarded as civil-law effective resolutions on the use and distribution of profits as the basis for taxation. Accordingly, there were only open profit distributions to the second GmbH and no distributions to the plaintiff. There was also no misuse of arrangements. The plaintiff was not granted any benefit not provided for by law through the distributions solely to the GmbH. The civil-law effectively resolved incongruent distributions are to be recognized for tax purposes, said the BFH.
Lawyers experienced in tax law advise national and international clients at MTR Legal Rechtsanwälte.
