If a limi\u00adt\u00aded lia\u00adbi\u00adli\u00adty com\u00adpa\u00adny (GmbH) makes pay\u00adments to one of its share\u00adhol\u00adders under an agen\u00adcy agree\u00adment, this can pro\u00adve cos\u00adt\u00adly from a tax per\u00adspec\u00adti\u00adve. In a recent ruling, the M\u00fcns\u00adter Finan\u00adce Court has deci\u00added that such pay\u00adments are to be trea\u00adted in full as a hid\u00adden dis\u00adtri\u00adbu\u00adti\u00adon of pro\u00adfits (vGA) if the con\u00adtract does not satis\u00adfy the arm\u2019s length principle.<\/p>\n
In Decem\u00adber 2014, a GmbH ente\u00adred into a manage\u00adment ser\u00advices agree\u00adment with C GmbH, which held a 50 per cent sta\u00adke in it. It is worth not\u00ading that the same per\u00adson, the mana\u00adging direc\u00adtor E, acted on both sides of the agree\u00adment. C GmbH was to sup\u00adport the manage\u00adment of the GmbH in all are\u00adas and, in return, recei\u00adve a month\u00adly lump sum of 2,500 euros as well as a varia\u00adble share of 20 per cent of the annu\u00adal pro\u00adfit under com\u00admer\u00adcial law, befo\u00adre tax and extra\u00ador\u00addi\u00adna\u00adry depreciation.<\/p>\n
Bet\u00adween 2015 and 2018, the annu\u00adal pay\u00adments total\u00adled bet\u00adween appro\u00adxi\u00adm\u00adate\u00adly 331,000 and 514,000 euros. The actu\u00adal mana\u00adging direc\u00adtors of the GmbH, Mr D and Mr E, howe\u00adver, did not recei\u00adve a sala\u00adry for their manage\u00adment duties.<\/p>\n
During a tax audit, the tax office clas\u00adsi\u00adfied all pay\u00adments as hid\u00adden pro\u00adfit dis\u00adtri\u00adbu\u00adti\u00adons pur\u00adsu\u00adant to sec\u00adtion 8(3), second sen\u00adtence, of the Cor\u00adpo\u00adra\u00adti\u00adon Tax Act. Seve\u00adral points were cited in sup\u00adport of this:<\/p>\n
The tax office issued amen\u00added assess\u00adment noti\u00adces for cor\u00adpo\u00adra\u00adti\u00adon tax and trade tax. The GmbH brought legal pro\u00adcee\u00addings after its appeal had been unsuccessful.<\/p>\n
The M\u00fcns\u00adter Fis\u00adcal Court dis\u00admissed the cla\u00adim in its enti\u00adre\u00adty and upheld the tax office\u2019s assess\u00adment. A pru\u00addent and con\u00adsci\u00aden\u00adtious mana\u00adging direc\u00adtor would not have ente\u00adred into this con\u00adtract in this way, and a con\u00adtrac\u00adting par\u00adty from out\u00adside the com\u00adpa\u00adny would not have accept\u00aded it. The court spe\u00adci\u00adfi\u00adcal\u00adly cri\u00adti\u00adcis\u00aded three aspects:<\/p>\n
The appeal was dis\u00admissed. The jud\u00adge\u00adment is the\u00adr\u00ade\u00adfo\u00adre final for the time being (M\u00fcns\u00adter Finan\u00adce Court, jud\u00adge\u00adment of 20 May 2026, ref. 10 K 1001\/23 K,G,F).<\/p>\n
The jud\u00adge\u00adment high\u00adlights just how careful\u00adly con\u00adtracts bet\u00adween a limi\u00adt\u00aded lia\u00adbi\u00adli\u00adty com\u00adpa\u00adny (GmbH) and its share\u00adhol\u00adders must be draf\u00adted. A dis\u00adgu\u00adi\u00adsed pro\u00adfit dis\u00adtri\u00adbu\u00adti\u00adon means that the pay\u00adments do not redu\u00adce the GmbH\u2019s taxa\u00adble inco\u00adme and may be sub\u00adject to addi\u00adtio\u00adnal tax at the shareholder\u2019s end. In the worst-case sce\u00adna\u00adrio, this can pro\u00adve very costly.<\/p>\n
Anyo\u00adne ente\u00adring into such con\u00adtracts should descri\u00adbe the ser\u00advices pre\u00adcis\u00ade\u00adly, set the remu\u00adne\u00adra\u00adti\u00adon in line with mar\u00adket stan\u00addards, estab\u00adlish a remu\u00adne\u00adra\u00adti\u00adon cap and ensu\u00adre that all appr\u00adoval requi\u00adre\u00adments under the artic\u00adles of asso\u00adcia\u00adti\u00adon are com\u00adpli\u00aded with. Par\u00adti\u00adcu\u00adlar care is requi\u00adred, espe\u00adci\u00adal\u00adly whe\u00adre the same per\u00adson acts on both sides of a contract.<\/p>\n
Anyo\u00adne who is unsu\u00adre whe\u00adther exis\u00adting con\u00adtracts would stand up to an arm\u2019s\u2011length test should seek tax advice at an ear\u00adly stage to avo\u00adid sub\u00adse\u00adquent adjus\u00adt\u00adments by the tax authorities.<\/p>\n