Online message – Friday 09.06.2023
Corporate Income Tax | Side by side of pension payment and manager salary as vGA (BFH)
If, after the occurrence of the pension event, only a reduced salary is paid in addition to the pension benefit with full continued employment as a managing director for this activity, there is no social reason according to the stipulation of a hypothetical third-party comparison if the salary payment does not exceed the difference between the pension payment and the last active salary (Development of previous Senate case law:
; published on
).
background: According to the established case law of the Senate, under a vGA iS des
Section 8 (3) sentence 2 KStG in the case of a corporation, to understand asset reductions (prevented asset increases) that are caused or partly caused by the company relationship, to the amount of the difference according to
§ 4 paragraph 1 sentence 1 EStG i.V.m.
Section 8 (1) KStG affect and are not related to an open distribution. For the majority of the cases decided, the Senate assumed the cause to be the company relationship if the corporation gives its shareholder or a person close to him a pecuniary benefit that it would not have granted to a non-shareholder if the diligence of a prudent and conscientious manager had been exercised. In addition, the process must be suitable for the beneficiary shareholder to have another reference within the meaning of
Section 20 (1) no. 1 sentence 2 EStG
trigger.
If the beneficiary shareholder is a controlling shareholder, a vGA can also be assumed if the corporation provides a service to him or to a person close to him, for which there is a clear and unambiguous agreement made in advance, effective under civil law and actually implemented missing (so-called formal arm’s length comparison). In these cases, the behavior of the corporation and its shareholder or the person close to him that deviates from the arm’s length index indicates the cause in the company relationship (constant case law, e.g
m.w.N.).
facts: The parties involved are arguing about whether the pension paid to the controlling shareholder of a GmbH should be taken into account as a hidden profit distribution (vGA) as an income-increasing measure when managing director activities are resumed: The sole shareholder K of the plaintiff, a GmbH, was appointed as its managing director until 2010. After his dismissal for reasons of age, he received monthly pension payments from the plaintiff on the basis of a pension commitment. In 2011, K was reappointed as Managing Director. As compensation, he received monthly payments that were less than 10% of his previous executive pay. The plaintiff also continued to pay the pension.
The tax office took the view that the pension payments should be qualified as vGA and changed the corporate tax assessment accordingly. As part of the action brought against this, the plaintiff asserted, among other things, that K was reinstated for operational reasons. The activities of his successor as managing director led to conflicts with the clients and there was a risk of losing orders. The lawsuit was successful in the first instance ( see our
online message v. 16.9.2019).
The judges of the BFH also did not accept vGA:
-
Die payment of the old-age pension under the special circumstances of the dispute – also for the period after the conclusion of the new managing director employment contract – a general comparison with others.
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According to the jurisprudence of the Senate (BStBl II 2015, 409 and
BStBl II 2015, 413) the continuation of the employment relationship with simultaneous receipt of a pension on the one hand and ongoing managerial salary on the other hand is only partially compatible with the requirements that are decisive for the actions of the intended orderly and conscientious manager of a corporation. -
Such a manager would have demanded that either the income from the continued activity as a manager be offset against the pension benefit or the agreed start of the pension due date – if necessary by agreeing on a cash value adjustment calculated according to actuarial standards – be postponed until the beneficiary had finally ended his managerial function (confirmation of the
BStBl II 2015, 409, and v.
I R
60/12,
BStBl II 2015,
413). -
In the case of continued employment, they therefore close mutually
unrestricted Payments of pension and current salary from the relevant point of view of the service provider in principle; the potentially conflicting interests of the beneficiary are irrelevant in this respect. -
These principles relate primarily to cases of reciprocal “unrestricted” payments of pension and current salary. If for continued employment – as in the case of dispute – only one reduced salary paid, are within the scope of
hypothetical arm’s length comparison further consideration required. -
A proper and conscientious managing director would not pay both the full pension and a full salary for the activity (continued employment as managing director) at the same time. But he wouldn’t expect a “retired” managing director to continue working “for nothing”.
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Rather he would
be prepared in principle, in addition to the pension paid (only) for the adequate pension in retirement, for the (additional) services due to the continued or resumed activity as a manager, a salary up to the amount of the difference between the pension and the last active salary to pay (gl.A. Otto, GmbH-Rundschau 2014, 617, 621; basically agreeing Brandis/Heuermann/Rengers,
§ 8 KStG Rz
744 [allerdings beschränkt auf diejenigen Fälle, in denen Versorgung und Gehalt
in der Summe nicht mehr als 75 % der letzten Aktivbezüge betragen]). -
The pension character of the pension payments is fundamentally retained under these conditions.
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In the case at hand, there are no indications of a reduction in K’s working hours/areas of duties that justify a reduction, especially since he was the sole managing director again after the conclusion of the new employment contract. Moreover, the sum of pension and new salary at K was only 26% of his last active salary. This means that the difference between the pension and the last active salary, which is basically available for the payment of a salary without vGA consequences, is by no means exhausted.
Those:
; NWB Database (the)
Source(s):
NWB AAAAJ-41566