By judgment of 20 May 2026 – 4 K 9/26 – the Finanzgericht Niedersachsen (Lower Saxony Fiscal Court) ruled on the income tax treatment of a transfer of shares to an employee. The central issue was whether the transfer of GmbH (German limited liability company) shares by shareholders to an employee of the company can trigger taxation under § 17 Abs. 1 Satz 1 EStG (German Income Tax Act) and whether, in addition, a hidden contribution may be considered.
The decision is documented in the database of Lower Saxony case law under the title “Grundsätzliche Vollentgeltlichkeit der Übertragung von Geschäftsanteilen einer GmbH auf Mitarbeiter der GmbH gegen befristeten Verzicht auf Kündigung des Dienstverhältnisses” (“General full consideration for the transfer of shares in a GmbH to employees of the GmbH in return for a temporary waiver of termination of the employment relationship,” translation for meaning). It was also already picked up in the specialist press on 25 August 2026 and thus published before the later discussion in GWR. By contrast, the press newsletter of the Niedersächsisches Finanzgericht (Lower Saxony Fiscal Court) of 20 May 2026 did not contain any notice regarding these proceedings.
Background to the proceedings before the Finanzgericht Niedersachsen
Transfer of GmbH shares for employee retention
The claimant and another shareholder each held 50 percent of a GmbH. By notarised agreement dated 15 December 2020, both shareholders each transferred 3.5 percent of their shares to an employee of the company without consideration. According to the facts established, the background to the transfer was to retain the employee’s services for the company.
In the share transfer agreement, the employee undertook to retransfer, in whole or in part and without consideration, the respective share received if certain circumstances occurred. This was to apply if he terminated the employment relationship with the company of his own accord before 31 December 2027 or commenced a competing activity.
Valuation of the transferred shares
The fair market value of the transferred shares had been determined pursuant to § 11 Abs. 2 Bewertungsgesetz (German Valuation Act). This valuation served to determine the employment income received by the employee and was not in dispute between the parties.
The Finanzamt (German tax office) assessed the transaction as if the claimant had first made a hidden contribution of the shares transferred to the employee without consideration into the GmbH. According to this view, the shares were then passed on by the GmbH to the employee without consideration. From this, the Finanzamt derived a taxable event under § 17 Abs. 1 Satz 2 EStG on account of a hidden contribution.
Decision of the Finanzgericht Niedersachsen
Dismissal of the action by the Finanzgericht
The Finanzgericht Niedersachsen dismissed the action. It regarded the transfer of the shares as a fully remunerated transaction within the meaning of § 17 Abs. 1 Satz 1 EStG. In the court’s view, the decisive factor was that the shares were transferred on the basis of the existing employment contract and with a view to the employee’s expected continued work for the company.
According to the decision, the employee’s consideration did not consist of a purchase price paid in money. Rather, the court held that, by transferring the shares, the claimant had secured the employee’s services for the future. According to the classification reported in the specialist press, the transfer of GmbH shares to an employee in return for that employee’s temporary waiver of termination may generally be regarded as a fully remunerated transaction, so that the disposal proceeds correspond to the fair market value of the shares even if no cash purchase price is paid.
Distinction from BFH case law
The Finanzgericht held that, in the case decided, it was not decisive whether the transfer was caused by the corporate relationship or by the employment relationship. Unlike in the case decided by the Bundesfinanzhof (BFH, Federal Fiscal Court) by judgment of 1 September 2016, the beneficiary employee here had not yet been a shareholder.
In the discussion of the decision, this distinction is assessed critically. According to that discussion, the decisive factor for the question of whether a gratuitous or discounted transfer of shares by shareholders to employees is to be treated as third-party remuneration should be whether the legal basis of the participation lies in the employment relationship or in the corporate relationship. From this perspective, the two reasons do not exist side by side on an equal footing.
Hidden contribution and taxation under § 17 EStG
Full consideration under § 17 Abs. 1 Satz 1 EStG
The court assumed that, for the taxable event under § 17 Abs. 1 Satz 1 EStG, it is not decisive how the benefit is classified for tax purposes at the recipient’s level. What is sufficient, but also necessary, is a finding of a transfer for full consideration.
The employee’s temporary waiver of termination of the employment relationship with the GmbH was regarded as consideration for the share transfer. Between unrelated third parties, it is to be assumed that performance and consideration are of equivalent value. Therefore, the disposal proceeds correspond to the fair market value of the shares to be determined pursuant to § 11 Abs. 2 Bewertungsgesetz.
Hidden contribution under § 17 Abs. 1 Satz 2 EStG
In addition to the basic taxable event under § 17 Abs. 1 Satz 1 EStG, the Finanzgericht also considered the elements of § 17 Abs. 1 Satz 2 EStG to be applicable. It based this on the fact that a non-shareholder of the GmbH would not have granted a corresponding pecuniary advantage. Moreover, retaining qualified employees is a matter for the company itself.
In the relationship between the transferring shareholder and the company, according to the court’s guiding principles, a hidden contribution is likely to be assumed. § 272 Abs. 1a HGB (German Commercial Code) does not preclude this. According to the decision, a hidden contribution would result in subsequent acquisition costs with regard to the shares remaining with the shareholder.
Classification of the decision for tax practice
Criticism of equating it with fair market value
The discussion of the decision emphasises that the Finanzgericht’s approach is not undisputed. According to that discussion, where a capital gain is taxed under § 17 Abs. 1 Satz 1 EStG in conjunction with § 17 Abs. 2 Satz 1 EStG, the starting point should generally be the purchase price achieved. It is viewed critically that the Finanzgericht equated the non-cash benefit of the employee’s continued services with the fair market value of the transferred shareholding.
So-called leaver provisions are of particular importance in this context. Such provisions, which provide for a retransfer of the shares in the event of termination of the employment relationship or competing activity, may indicate that the reason for the shareholding lies in the beneficiary’s future activity.
Appeal on points of law withdrawn
An appeal on points of law had been lodged against the judgment. However, this appeal was withdrawn. The questions decided by the Finanzgericht Niedersachsen have therefore not been clarified by a court of last instance in these proceedings.
For comparable structures, the following points in particular remain significant:
- the distinction between causation by the employment relationship and causation by the corporate relationship,
- the tax treatment of consideration that does not consist of money,
- the valuation of the shares pursuant to § 11 Abs. 2 Bewertungsgesetz,
- the possible assumption of a hidden contribution under § 17 Abs. 1 Satz 2 EStG,
- the effects on subsequent acquisition costs of the remaining shareholding.
Frequently asked questions
FG Niedersachsen 4 K 9/26: Are GmbH shares to employees in return for a waiver of termination taxable?
The Finanzgericht Niedersachsen regarded the transfer of GmbH shares to an employee in return for that employee’s temporary waiver of termination as a fully remunerated transaction. Accordingly, a disposal transaction under § 17 Abs. 1 Satz 1 EStG may exist even if no cash purchase price is paid.
§ 17 EStG: Hidden contribution upon transfer of shares to employees?
In addition to § 17 Abs. 1 Satz 1 EStG, the court also considered § 17 Abs. 1 Satz 2 EStG to be applicable. In the relationship between the transferring shareholder and the company, according to the guiding principles, a hidden contribution is likely to be assumed.
What consequences does the FG Niedersachsen judgment on employee shareholdings have for companies?
The decision shows that share transfers to employees for the purpose of retaining them with the company may trigger income tax consequences for the transferring shareholder. The valuation of the transferred shares, the drafting of retransfer clauses and the classification of the consideration are particularly relevant.
Tax classification of employee shareholdings
The decision of the Finanzgericht Niedersachsen makes clear that share transfers to employees must be classified carefully for tax purposes, particularly where services, waiver of termination and corporate shareholding are linked. MTR Legal Rechtsanwälte advises companies, shareholders, investors and high-net-worth private individuals on tax issues in connection with participation structures and share transfers; further information can be found at Legal advice in tax law.
