BMF comments on pension payments with simultaneous managing director's salary
BMF comments on pension payments with simultaneous managing director's salary
In a BMF letter dated September 18, 2017, the tax authorities took the view that in the payment phase of a pension, the parallel payment of a managing director's salary and pension - for both a controlling and a non-controlling shareholder managing director - leads to a hidden profit distribution if the active salary is not offset against the pension benefit.
The BFH had contradicted this in this absolute manner in its decision of March 15, 2023, I R 41/19: If, after the occurrence of the pension event, only a reduced salary is paid for this activity in addition to the pension payment with full continued employment as managing director, there is no corporate cause and therefore no hidden profit distribution in accordance with a hypothetical arm's length comparison if the salary payment does not exceed the difference between the pension payment and the last active salary.
The tax authorities have now adopted these principles and amended the relevant note 10 of their original letter accordingly in a letter dated August 30, 2024: Subject to compliance with the formal arm's length principle for controlling shareholder managing directors (Guideline 8.5 para. 2 KStR), there is no hidden profit distribution if the sum of the pension payment and the new active salary does not exceed the active salary paid before the pension event occurred. The principles apply both to monthly pension payments and to the exercise of an agreed capital option upon reaching the agreed age limit.
On another point, however, the tax authorities expressly maintain their position: Part-time employment is not compatible with the job description of a shareholder-managing director, so that in such cases a hidden profit distribution per se is to be assumed if pension payments and salary are paid at the same time. The BFH had still ruled that even in the case of continued or subsequent employment with reduced working hours/areas of responsibility, the difference between the pension and the last active remuneration can be fully utilized without triggering a hidden profit distribution and only the (“harmless”) amount is to be reduced.
The BFH had contradicted this in this absolute manner in its decision of March 15, 2023, I R 41/19: If, after the occurrence of the pension event, only a reduced salary is paid for this activity in addition to the pension payment with full continued employment as managing director, there is no corporate cause and therefore no hidden profit distribution in accordance with a hypothetical arm's length comparison if the salary payment does not exceed the difference between the pension payment and the last active salary.
The tax authorities have now adopted these principles and amended the relevant note 10 of their original letter accordingly in a letter dated August 30, 2024: Subject to compliance with the formal arm's length principle for controlling shareholder managing directors (Guideline 8.5 para. 2 KStR), there is no hidden profit distribution if the sum of the pension payment and the new active salary does not exceed the active salary paid before the pension event occurred. The principles apply both to monthly pension payments and to the exercise of an agreed capital option upon reaching the agreed age limit.
On another point, however, the tax authorities expressly maintain their position: Part-time employment is not compatible with the job description of a shareholder-managing director, so that in such cases a hidden profit distribution per se is to be assumed if pension payments and salary are paid at the same time. The BFH had still ruled that even in the case of continued or subsequent employment with reduced working hours/areas of responsibility, the difference between the pension and the last active remuneration can be fully utilized without triggering a hidden profit distribution and only the (“harmless”) amount is to be reduced.