Tax Treatment of an Incongruent Advance Profit Distribution Resolution Breaking the Articles of Incorporation on a Point-by-Point Basis

Contrary to the view of the tax authorities (letter of the Federal Minister of Finance dated December 17, 2013, BStBl I 2014, 63), a resolution on an incongruent advance distribution that is passed unanimously by the shareholders’ meeting and cannot be challenged by any shareholder is to be taken as the basis for taxation as a resolution on distribution that is effective under civil law. A shareholder to whom no profit is distributed pursuant to such a resolution does not realize the facts of income generation pursuant to Sec. 20 para. 1 No. 1 Sentence 1 EStG. This was decided by the Federal Fiscal Court (Bundesfinanzhof, BFH) in a ruling dated September 28, 2022 – VIII R 20/20.

The plaintiff held a 50% interest in a GmbH 1 in the years 2012 to 2015. The other 50% shareholder was a GmbH 2, of which the plaintiff was the sole shareholder. In each of the years in dispute, the shareholders of GmbH 1 unanimously passed advance distribution resolutions distributing the advance profits only to GmbH 2. The articles of association of GmbH 1 did not contain any provisions on the distribution of profits. These were therefore to be distributed in accordance with the shareholding ratios (Sec. 29 (3) Sentence 1 GmbHG). The tax office considered the distribution resolutions to be void under civil law due to the incongruent distribution of the advance profits and classified the plaintiff’s half of the distribution amounts as income from hidden profit distributions in accordance with Sec. 20 (20) of the German Income Tax Act. 1 No. 1 Sentence 2 EStG to taxation.

The BFH dismissed the tax office’s appeal against the tax court’s ruling in favor of the plaintiffs as unfounded. The unanimously adopted distribution resolutions are to be taken as the basis for taxation as resolutions on the appropriation and distribution of profits effective under civil law. Therefore, there were only open profit distributions from GmbH 1 to GmbH 2 and no distributions to the plaintiff. An attribution of half of the distribution amounts to the plaintiff on the basis of an abuse of discretion pursuant to Sec. 42 of the German Fiscal Code (AO) is out of the question. Incongruent distributions validly resolved under civil law are to be recognized for tax purposes. Due to the distributions of GmbH 1 only to GmbH 2, the plaintiff was also not entitled to a tax advantage not provided for by law within the meaning of Sec. 42 (1). 2 sentence 1 AO arose.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.