FG München (Munich Fiscal Court) has ruled that a cooperative may not deduct the costs of a package holiday to Mallorca for its members or a visit to a wildlife park as business expenses (FG München, decision of 24 February 2025 – 7 K 1583/24); an appeal on points of law against the decision is pending before the Bundesfinanzhof (BFH, Federal Fiscal Court) under case no. I R 32/25. In the Court’s view, the expenses are attributable to the members’ private living expenses and must therefore be treated as constructive dividends.
Limits of a cooperative’s statutory purpose of promoting its members
Expenses for the trip and wildlife park visit
The proceedings concerned the tax treatment of expenses incurred by a cooperative for a trip to Mallorca for its members and a visit to a wildlife park. The cooperative took the view that these benefits served exclusively to fulfil its purpose of promoting its members under § 1 Abs. 1 GenG (German Cooperative Societies Act).
In its view, these were not constructive dividends but promotional benefits that had been offered to all members at the same time. It also argued that a cooperative’s economic activity was not an end in itself. Rather, the Genossenschaftsgesetz (German Cooperative Societies Act) required that its activities serve to promote its members. The associated expenses were therefore deductible as business expenses.
Tax authorities and Court reject this argument
Neither the Finanzamt (Tax Office) nor FG München accepted this assessment. According to the decision, the promotion of members’ social or cultural interests may not take any arbitrary form.
Instead, a clearly structured and transparent member promotion business operation is required. According to the second official headnote of FG München, translated in substance, the business operation must constitute the means of achieving the promotional purpose on the basis of transactions designed to promote the members. Merely describing a benefit as promoting members is therefore not sufficient for the associated expenses to qualify as business expenses for tax purposes.
Tax classification of benefits provided to members
Private living expenses and constructive dividends
FG München classified the expenses for the package holiday and the wildlife park visit as members’ private living expenses. For this reason, the expenses had to be treated as constructive dividends and were not deductible as business expenses.
The decision is based in particular on the following provisions:
- § 8 Abs. 1 KStG (German Corporation Tax Act) concerns the determination of a corporation’s taxable income.
- § 8 Abs. 3 Satz 2 KStG provides that constructive dividends do not reduce taxable income.
- § 4 Abs. 4 EStG (German Income Tax Act) defines business expenses as expenses incurred in the course of business.
- § 1 Abs. 1 GenG governs a cooperative’s purpose of promoting its members.
According to the decision, the statutory mandate to promote members therefore does not mean that every benefit provided to members is business-related. Even in the case of social or cultural measures, the decisive factor remains whether the benefit forms part of a transparent member promotion business operation.
Tax authorities’ position on family cooperatives
On 17 February 2026, the Bayerisches Landesamt für Steuern (Bavarian State Tax Office) issued an administrative order under reference S 7300.2.1-228/12 St33 concerning the tax treatment of so-called family cooperatives. It supersedes the administrative order of 2 April 2025 bearing reference S 7300.2.1-228/10 St33.
According to the administrative order, the principles governing constructive dividends also apply to cooperatives. Subject to an assessment of the individual case, expenses relating to members’ private living expenses must generally be assumed to constitute constructive dividends.
Significance for tax classification
The decision highlights the distinction for tax purposes between statutory transactions designed to promote members and benefits serving members’ private living expenses. A cooperative’s purpose of promoting its members does not, in itself, justify the deduction of business expenses. The decisive issue remains whether a structured and transparent member promotion business operation exists and whether the benefit in question is based on a transaction designed to promote the members.
The classification of member-related expenses can have a significant impact on a cooperative’s taxable income. For questions concerning the distinction between business expenses, promotional benefits and constructive dividends, MTR Legal advises companies, investors and high-net-worth individuals as part of its tax law advisory services.
