With its BMF letter dated 04.09.2024 (IV C 2 – S 2742/19/10004 :003), the tax authorities have created legal certainty for the tax structuring of profit distributions at a corporation.
Background
In accordance with Section 29 (2) GmbHG, the profit of a corporation can either be distributed to the shareholders (in full or in part) or the profit can be carried forward. In the case of profit distribution, the profit share of each individual shareholder is based on their share of the share capital in accordance with § 29 Para. 3 GmbHG. However, this distribution can be deviated from in the articles of association of the corporation.
In the case of corporations with more than one shareholder, the following provisions must now be included in the articles of association of the corporation as a mandatory component.
Split appropriation of profits
In practice, the problem often arises that not all shareholders wish to make a profit distribution at the same time. However, shareholders who are invested via a holding company are often interested in a profit distribution due to the low tax burden on profit distributions.
In these cases, the articles of association of the corporation must include a provision on the so-called split appropriation of profits so that each shareholder can decide individually on the distribution of their share of profits. This makes it possible for only individual shareholders to receive a profit distribution, while others can continue to retain their share of profits in the corporation and distribute them to themselves at a later date.
Incongruent profit distribution
In start-up companies in particular, no or only very low remuneration is initially agreed for the shareholders for their services (e.g. managing director’s salary). If the corporation later makes a profit, this can be distributed to the shareholders.
At the same time, a shareholder who has previously received no or too little remuneration for his services to the corporation may receive a higher share of the profit distributions than his share of the nominal capital. This is known as an incongruent profit distribution.
In these cases, the profit of the corporation is not measured according to each shareholder’s share of the share capital, but a different agreement is made. In order for this to be accepted by the tax authorities for tax purposes, a provision to this effect must be included in the articles of association of the corporation.
Practical recommendation
In the case of newly formed corporations, as well as existing corporations with more than one shareholder, the inclusion of a provision on the split appropriation of profits and incongruent profit distribution in the articles of association must be examined. If the articles of association do not contain any provisions, the amendment must be notarized and filed with the commercial register so that it is also effective for tax purposes.
The author: Timo Unterberg
Anyone who knows me knows that tax law is my passion! When I am not advising young growth companies and medium-sized corporate clients on restructuring, financing issues or corporate succession, I am on the road as a lecturer in tax consultant training and continuing education. I also regularly write tax-related articles for specialist journals.
