Entries by Ester Hahn

SPECIAL TAX FEATURES AND PITFALLS IN THE TAXATION OF MANAGEMENT BONUSES OF CONTROLLING SHAREHOLDER-MANAGING DIRECTORS OF A GMBH

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In addition to the arm’s length principle, the decisive factor for the recognition for tax purposes of legal relationships between a shareholder and “his” GmbH (German limited liability company) is the respective shareholder’s ability to exert influence. In a ruling dated 12 July 2021, Case No. VI R 3/19, the German Federal Fiscal Court consolidated its previous case law on the taxation of management bonuses of a sole shareholder of a GmbH. We will take this as an opportunity to take a closer look at the tax treatment of legal relationships between a GmbH and its controlling shareholder-managing director, with a particular focus on the taxation of management bonuses.

UPDATE ON EMPLOYEE CO-DETERMINATION RIGHTS WITHIN SUPERVISORY BOARDS

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If the number of employees employed by a company exceeds a certain threshold, the law provides for the establishment of a supervisory board co-determined by employees. In accordance with established case law, the number of employees is determined by taking into account past and future developments on the basis of reference periods of several months. In this way, random results due to short-term fluctuations in the number of employees and frequent changes in the structure of the supervisory board are to be avoided. In a new decision, the Bavarian Supreme Court has concretized this case law and strengthened the position of companies.

ARBITRABILITY IV: ANOTHER CHAPTER ON THE ARBITRABILITY OF DISPUTES REGARDING PARTNERS‘ RESOLUTIONS IN PARTNERSHIPS

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If a dispute arises between shareholders/partners about shareholders‘/partners‘ resolutions, there is often an interest in a quiet resolution outside the ordinary court proceedings. However, it is important for arbitration agreements between shareholders/partners to meet the legal requirements. These have been developed by the Federal Court of Justice in its decisions Arbitrability II and III. With the most recent decision from 2021 (Arbitrability IV), the court has further specified them. This newsletter article is intended to present the most important learnings from this decision and to provide an outlook on future developments.

MODERNIZATION OF THE LAW ON PARTNERSHIPS: EVOLUTION FROM PRACTICAL EXPERIENCE – BUT STILL A NEED FOR ACTION

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The modernization of partnership law has been completed. The provisions of the Act on the Modernization of Partnership Law will come into force on 1 January 2024. It is true that the main purpose of the new provisions is to eliminate the current discrepancy between the regulatory concept currently in force and the needs of practice. However, the new regulatory framework also requires creative action.

UPDATE ON THE SCOPE OF LIABILITY FOR IMMORAL DELAY IN FILING FOR INSOLVENCY

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In the event of insolvency or overindebtedness of a legal entity, the members of the representative body or the liquidators are obliged to file for insolvency. In the event that the application for commencement of insolvency proceedings is not filed or not filed in due time, the representative body risks not only criminal prosecution but also personal civil liability vis-à-vis the creditors of the insolvent company. In individual cases, also contractual partners of the insolvent company can be held responsible. In a recent decision, the Federal Court of Justice (BGH) has dealt with the scope of civil liability for immoral delay to file for insolvency. This decision is of considerable relevance for practice.

BFH AFFIRMS LEGAL TAX STRUCTURING FOR PARTIAL “EVASION” OF SPECULATION TAX IN THE CASE OF REAL ESTATE SALES PURSUANT TO § 23 PARA. 1 SENTENCE 1 NO. 1 GERMAN INCOME TAX ACT (ESTG)

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In its ruling of 23 April 2021 – IX R 8/20 – the Federal Fiscal Court decided that the transfer of a rented residential property to children as a gift for subsequent sale does not constitute abusive tax planning. This decision means that tax-optimized property sales, particularly in the context of anticipated succession, can be structured in a legally secure manner in the future.

THE PARTNERSHIP AS SUBSIDIARY COMPANY FOR VAT PURPOSES

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In its ruling of 15 April 2021, the ECJ has rejected the legal opinion of the tax authorities and the Fifth Senate of the German Federal Fiscal Court: contrary to their opinion, a national restriction of a taxable entity with regard to partnerships as subsidiary companies is not compatible with EU law.. This entails both opportunities and risks.