FG Nürnberg Confirms § 10 No. 4 KStG
By judgment of 30 September 2025, the Finanzgericht Nürnberg (Fiscal Court of Nuremberg) held that the prohibition on deducting half of the remuneration paid to members of supervisory bodies under § 10 No. 4 KStG (German Corporation Tax Act) is constitutional. In the court’s view, the provision does not violate Art. 3 Abs. 1 GG (German Basic Law). The action was dismissed; the costs of the proceedings were imposed on the claimants.
The proceedings centred on the question of whether the tax recognition of only half of supervisory board remuneration as business expenses is compatible with the principle of equality. The fiscal court answered this in the affirmative and classified the statutory rule as a permissible departure from the net income principle.
Dispute Concerned a Tax Group and Assessment Notices
Claimants from a Tax Group Relationship
In the proceedings, two claimants who were integrated in a tax group relationship brought the action. The challenged notices concerned the separate and uniform determination of the income of the controlled company to be attributed to the controlling company under § 14 Abs. 5 KStG for the years 2019 to 2021.
In determining income, the tax office had added back half of the supervisory board remuneration in each case, amounting to EUR 15,700. The original determination notices were dated 8 June 2021 for 2019, 20 May 2022 for 2020 and 7 February 2023 for 2021; each was issued subject to review.
Amendments Following an External Tax Audit
Following an external tax audit, the determinations for individual years in dispute were amended. The income of the controlled company to be attributed to the controlling company was determined by notices dated 27 December 2023 in the following amounts:
- EUR 8,083,401 for the year 2019,
- EUR 8,678,903 for the year 2020.
These determinations formed the procedural background to the constitutional objections to § 10 No. 4 KStG.
50% Business Expense Deduction Remains in Place According to the FG
No Violation of Art. 3 Abs. 1 GG
The Finanzgericht Nürnberg did not see § 10 No. 4 KStG as violating the general principle of equality under Art. 3 Abs. 1 GG. Under the provision, remuneration of any kind paid to members of the supervisory board, administrative board, mining board or other persons entrusted with supervising management may reduce profit only by half.
In the court’s opinion, this restriction also applies to municipally influenced corporate structures with a mandatory supervisory board. According to the decision, the fact that a supervisory board was not established voluntarily did not mean that § 10 No. 4 KStG had to be assessed differently from a constitutional law perspective.
Professionalisation of the Supervisory Board Does Not Change the Assessment
The court also addressed the development of supervisory board activities. In the opinion of the fiscal court, the advanced professionalisation of supervisory bodies does not justify a different constitutional assessment of the statutory deduction restriction.
The court therefore upheld the applicability of the prohibition on deducting half of the expenses. According to the decision, remuneration for supervisory bodies generally cannot be deducted in full by the corporation as business expenses.
Classification of the Constitutional Issue in Dispute
Discussion in Case Law and Legal Literature
The constitutionality of § 10 No. 4 KStG is disputed in legal literature. One critical argument is that earlier decisions of the Bundesverfassungsgericht (BVerfG, Federal Constitutional Court) and of the Bundesfinanzhof (BFH, Federal Fiscal Court) from 1968 and 1972, respectively, on this issue may be outdated.
In the reasons for its decision, the Finanzgericht Nürnberg specifically engaged with the commentary by Frotscher/Drüen. According to that commentary, the earlier grounds for justifying the prohibition on deductions ceased to apply with the introduction of the imputation system or partial-income system. The court ultimately did not follow this view.
Permissible Departure from the Net Income Principle
The fiscal court expressly classified the prohibition on deducting half of the expenses as a permissible departure from the net income principle. According to the court’s reasoning as discussed in tax advisory practice, there is neither impermissible double taxation nor a breach of the objective net income principle or of the principle of equality.
The reasoning is based on the view that the provision takes account, on a typified basis, of the interests of shareholders and the company. The court therefore considered the legislative typification constitutionally acceptable.
Appeal Proceedings Pending before the Bundesfinanzhof
Appeal Allowed and Filed
The Finanzgericht Nürnberg allowed an appeal on points of law. An appeal was filed against the judgment; the proceedings are pending before the Bundesfinanzhof under docket number I R 3/26. The appellant is the taxpayer.
The proceedings appear in the list of pending proceedings of the Bundesfinanzhof dated 20 April 2026. According to the information provided, a final decision by the Bundesfinanzhof had not yet been issued.
Statutory Framework of the Decision
The decision of the Finanzgericht Nürnberg concerns in particular § 10 No. 4 KStG and § 14 Abs. 5 KStG as well as Art. 3 Abs. 1 GG. In addition, the chain of statutory provisions cited in the judgment also includes stock corporation law provisions and procedural rules.
In particular, the following are mentioned:
- §§ 112, 113, 116 and 117 AktG (German Stock Corporation Act),
- § 115 Abs. 2 No. 1 FGO (German Fiscal Court Code),
- § 135 Abs. 1 FGO.
Thus, in addition to the corporation tax deduction restriction, the procedural framework for allowing the appeal and the decision on costs was also in focus.
Significance for Companies with Supervisory Bodies
The decision initially confirms the previous application of § 10 No. 4 KStG by the tax authorities and the fiscal courts. Companies that pay remuneration to supervisory boards or comparable supervisory bodies may, according to the decision of the Finanzgericht Nürnberg, continue to take into account only the 50% business expense deduction, insofar as the provision applies.
This is particularly relevant for corporations and tax groups in which supervisory board remuneration is included in the determination of income. According to the decision, this also applies where the corporate structure is municipally influenced and a supervisory board is mandatory.
Since the appeal is pending before the Bundesfinanzhof, clarification by the highest court remains to be awaited. Until a decision by the Bundesfinanzhof is issued, the status of the proceedings must be regarded as open.
Frequently Asked Questions
Is § 10 No. 4 KStG constitutional according to the judgment of the FG Nürnberg?
By judgment of 30 September 2025, the Finanzgericht Nürnberg regarded § 10 No. 4 KStG as constitutional. In the court’s opinion, the prohibition on deducting half of supervisory board remuneration does not violate Art. 3 Abs. 1 GG.
What practical consequences does the FG Nürnberg judgment on supervisory board remuneration have for companies?
According to the decision, remuneration paid to supervisory boards and comparable supervisory bodies remains only half deductible at the level of the corporation, insofar as § 10 No. 4 KStG is applicable. This may influence the tax determination of income, particularly for corporations and tax groups.
Has the appeal concerning § 10 No. 4 KStG before the BFH already been decided?
According to the available information, the appeal is pending before the Bundesfinanzhof under docket number I R 3/26. The proceedings are based on the Finanzgericht Nürnberg’s decision to allow the appeal.
Tax Law Assessment by MTR Legal
The decision of the Finanzgericht Nürnberg concerns an issue that has been discussed for years regarding the corporation tax treatment of remuneration paid to supervisory bodies. Particularly in group structures, tax groups and municipally influenced companies, the classification of the deduction restriction under § 10 No. 4 KStG may be of considerable importance for the tax assessment. MTR Legal Rechtsanwälte advises companies, investors and high-net-worth individuals on tax law matters with a commercial law dimension. Further information can be found under Legal advice in tax law.
