Covert profit distribution

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The hidden profit distribution (vGA) is a legal tax institute with the help of which legislators and in particular case law try to ensure appropriate taxation of asset transfers between a corporation and its shareholders .

Situation in Germany

Legal basis

In Germany, the vGA is regulated in Section 8 (3) of the Corporation Tax Act (KStG). After that it is irrelevant for the determination of the income whether the income is distributed. According to sentence 2 of this provision, vGAs do not reduce income. The provision makes it clear that the mere use of profits cannot lead to a reduction in the tax base. The definition of the term vGA is in particular the result of decades of extensive jurisprudence by the tax courts .

definition

According to the principles developed by case law, a VGA is a benefit that is caused by the corporate relationship. This is to be assumed in particular if an orderly and conscientious manager would not have granted the benefits to a person who is not a partner (R 8.5 para. 1 sentence 1 KStR ). This includes, in particular, inappropriate pecuniary benefits that cannot withstand an arm's length comparison in favor of the shareholders, who have reduced the company's profit (= difference in accordance with Section 4 (1 ) of the Income Tax Act ) and with the help of which the use of profits that are irrelevant for tax purposes should be transferred to tax-effective business expenses .

In relation to a controlling shareholder (holding over 50%), an incentive through the corporate relationship and thus a vGA is generally to be assumed even if there is no clear, unambiguous, civil law agreement on whether and the amount of a fee to be paid for a service by the shareholder, or if a clear agreement is not followed (R 36 (2) sentence 1 KStR). Due to this special case law developed for the controlling shareholder, even the arm's length benefits are excluded from the deduction of operating expenses and treated as vGA if there is a lack of timeliness, clarity, effectiveness under civil law or the proper execution of an agreement regulating the benefit. The aim of this case law is, in view of the lack of conflicting interests between the company and shareholders, to avoid profit manipulation due to control by imposing various formalities. According to the special case law for controlling shareholders, payments to non-controlling shareholders can also be dealt with if they pursue “interests in the same direction” as other shareholders.

The above principles apply not only to direct donations to the shareholder, but also to persons close to him.

Legal consequences (from 2009)

Social level

The tax office usually determines the hidden profit distribution during a later review, i.e. at a point in time when the management no longer has any design options. A distinction must be made as to whether the VGA only led to a reduction in profits without an outflow of assets (e.g. passivation of an excessive pension provision), only an outflow without a decrease in profit (e.g. activation of the excessive property purchase price) or, which is the normal case, both , so profit reduction and outflow are given at the same time. If the profit has been reduced, the value of the vGA must be added back to the income of the company outside the balance sheet . At the company level, it increases the company's income - now re-qualified as an insignificant appropriation of profits. The increased income is subject to corporation tax ( Section 23 (1) KStG) and trade tax ( Section 7 (1 ) GewStG ). If the vGA has been withdrawn from it and if there is no return of a deposit according to Section 27 (1) sentence 3 KStG exists, from 2009 onwards a capital gains tax of 25% of the VGA is to be withheld from the shareholder ( Section 43 (1) sentence 1 no.1 , Article 43a (1) sentence 1 no.1 EStG). If the profit reduction and outflow coincide with each other, the income increase and the withholding tax withholding tax can take place in different assessment periods. In addition, the vGA can be subject to sales tax as a free value tax ( Section 3 Paragraph 1b and Paragraph 9a UStG ) .

Shareholder level

If the shares in the company are in the private assets of the shareholder, the vGA leads to income from capital assets when they are received . From 2009, taxation will be based on the final withholding tax ( § 32d EStG), i. H. Income tax is settled by the 25% withholding tax withheld by the company ( Section 43 (5) EStG) and there is no deduction of income-related expenses ( Section 20 (9) sentence 1 EStG). If the partner has at least 25% stake in the corporation , or at least 1% in the case of professional activity for this company , the partner can optionally tax the vGA according to the partial income method ( Section 3 No. 40, Section 32d Paragraph 2 No. 3 EStG). This means that the vGA, as in cases in which the shares in the distributing company are part of business assets , is only taxable at 60% ( Section 3 No. 40d EStG) or income-related expenses are taken into account at 60% can ( Section 3c (2) sentence 1 EStG). The prerequisite, however, is that the VGA has been discovered and added to the corporation (from VZ 2007). If the shareholder's inflow of assets corresponding to the vGA was already recorded in his other income, for example the excessive salary in the income from employment, this must be reversed since the vGA is recorded in the income from capital assets after its discovery, since Otherwise there would be double taxation (reclassification). Section 32a of the KStG (2007) makes it possible to change the income tax assessment of the beneficiary shareholder accordingly when the corporation tax assessment is discovered and changed. If the tax deposit account is considered to have been used by the distributing company with regard to the hidden amount distributed ( Section 27 Paragraph 1 Sentence 3 KStG) or this has been certified to the shareholder ( Section 27 Paragraph 5 Sentence 1 KStG), the amount will exceed the acquisition costs of the investment the VGA to a profit that is taxable according to the partial income method ( Section 3 No. 40c EStG) within the meaning of Section 17 (4) EStG.

If the shareholder is a corporation, the vGA is in accordance with § 8b Abs. 1 KStG exempt from corporation tax. However, this has to tax 5% of the VGA as a flat-rate non-deductible business expense ( Section 8b (5) KStG). The capital gains tax withheld by the distributing corporation is to be reimbursed by the tax office ( Section 36 (2) No. 2 Sentence 1 EStG). If the receiving company has a stake of at least 15% in the distributing company, the vGA remains exempt from trade tax ( Section 9 No. 2a GewStG). Otherwise, the vGA is subject to trade tax as a “free float dividend” ( Section 8 No. 5 GewStG). See also nesting privilege .

The crediting procedure was in effect from 1977 to 2000 . From 2001 (foreign profit distributions) and 2002 (domestic profit distributions), this was replaced by the so-called half - income method, which was valid until 2008.

Switzerland

In Switzerland, the hidden profit distribution for the federal government in Art. 58 Para. 1 lit. b of the Federal Act on Direct Federal Taxes (DBG). Individual regulations apply in the cantons, whereby Art. 24 Paragraph 1 lit a of the Federal Act on the Harmonization of Direct Taxes of the Cantons and Communes stipulates that expenses not justified for business purposes are offset. In addition, a hidden profit distribution is subject to withholding tax if the other requirements are met.

Examples of vGA

  • The salary of a managing director is unusually high.
  • The controlling shareholder-managing director agrees with the company with regard to the positive annual result only after the end of the financial year retrospectively an appropriate salary in his favor.
  • The two 50% shareholder-managing directors jointly agree to pay appropriate salaries retrospectively after the end of the financial year.
  • A partner sells an asset to the company at an inflated price.
  • The company sells an asset to the shareholder at a price that is too low.
  • A partner grants or receives loans to / from his company at conditions that are not customary in the market (see " Cash pooling "), e. B. from society at too low an interest rate, to society at an excessive interest rate.
  • Rentals / leases or deliveries of goods within the group at conditions that are not customary in the market (see arm's length principle ).

A vGA can also exist for a commercial type of legal entity under public law (H 36 KStR). This can e.g. This could be the case, for example, when a municipality provides its own business with too little share capital and instead grants it loans.

See also

literature

  • Kohlhepp, Ralf: "Hidden profit distribution - recognition, design, avoidance" , Gabler Verlag 2008, ISBN 978-3-8349-0567-3

Individual evidence

  1. ↑ u. a. BFH judgment of October 20, 2004, Az. IR 4/04  ( page no longer available , search in web archives )  Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. , BFH / NV 2005, 723, full text.@1@ 2Template: Toter Link / treffer.nwb.de  
  2. ^ BFH judgment of February 22, 2005, Az. VIII R 24/03, BFH / NV 2005, 1266.
  3. ↑ z. B. Hey, GmbHR 2001, 91.

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