BFH ruling: When bonuses to management board members do not constitute a constructive dividend

When does management board remuneration become a tax pitfall? On October 24, 2024, the Federal Fiscal Court (BFH) issued a groundbreaking ruling (case no. I R 36/22) that provides companies with more clarity. The focus: bonus payments to board members who are also minority shareholders of a stock corporation (“AG”) – and the question of whether they should be treated as a constructive dividend.

The case: Remuneration agreement between AG and board member

In the underlying case, the board member of an AG was also a minority shareholder of the company. The employment contract of the board member provided for profit and turnover-related bonus payments. As part of an external audit, the tax office qualified these payments as constructive dividend, which led to an increase in corporate income tax for the AG.

BFH: Bonuses do not automatically constitute a constructive dividend

The BFH ruled that remuneration agreements between an AG and a board member who is also a minority shareholder of the company do not automatically qualify as constructive dividends. The BFH clarified that turnover or profit-related bonuses in an AG can only be recognized as a constructive dividend if there are special circumstances that clearly show that the supervisory board has unilaterally focused on the board member’s interests. The BFH thus contradicted the opinion of the Nuremberg tax court (case no. 1 K 1489/20), which had based its decision on previous case law relating to the remuneration of a GmbH’s managing director. The BFH clarified that the situation is different for an AG. In particular, in the case of an AG, it is important that the supervisory board is legally obliged to protect the company’s interests when determining the management board’s remuneration.

Significance for practice

The BFH's decision demonstrates that the tax assessment of bonus payments to board members with shareholder status requires careful consideration. The BFH emphasizes that an independent supervisory board is decisive for the payments’ recognition for tax purposes. This clarification is particularly important for companies that have entered into similar agreements with their management board members or wish to do so in the future.

Constructive dividends are often a contentious issue in criminal tax law practice. Companies should therefore carefully examine their remuneration structures in order to avoid risks. Particularly in the case of payments to board members who are also shareholders, a correct and comprehensible determination of remuneration is of vital importance in order to prevent possible additional tax claims or discussions with the tax authorities.