Following a judgment of the Supreme Tax Court, the tax authorities confirm that incongruent profit distributions - i.e. profit distributions that deviate from the share in the share capital or nominal capital - are in principle to be recognized for tax purposes. This requires that the corresponding dividend resolution is effective under civil law. In its current circular the Federal Ministry of Finance (MoF) explains in more detail the principles and special features of various constellations.
A civil law resolution for a selective incongruent advance distribution to only one of two shareholders contravening the articles of association but passed unanimously by the shareholders' meeting is also tax effective. Thus, the “left-out” shareholder does not realize taxable income by way of a hidden distribution.
