Potential Hidden Profit Distributions in the Form of Inflated Salaries for Managing Directors

Benefits within a company arising exclusively form the corporate relationship are often paid out under the guise of inflated salaries.


Cologne, NRW -- (SBWire) -- 03/06/2013 --GRP Rainer Lawyers and Tax Advisors, Cologne, Berlin, Bonn, Düsseldorf, Essen, Frankfurt, Hamburg, Hanover, Munich, Stuttgart, Bremen, Nuremberg and London www.grprainer.com/en explain: Within the framework of the salaries margin for managing directors of a GmbH, there are serious disparities. For this reason, it is not uncommon for remunerations for this position in a company of this legal form to be disproportionately high in comparison to comparable companies.

This is then problematic if there is reason to suspect that the size of the salaries came about solely through the corporate relationships, thus hidden profit distributions exists. These are benefits which a prudent managing director would not grant to a person who is not a partner, where qualifications and position in the company are the same.

The Münster Finance Court recently had to decide such a case (Az. 13 K 125/09 F): It concerned a GmbH & Co. KG, whose only partner was a GmbH. All of its limited partners were children of the GmbH managing director, thus only partners were involved. Only one advisory committee external to the company was commissioned that should determine the size of the salaries of the managing directors. Ultimately, these appeared too high to the tax authorities; hidden profit distributions were suspected.

The Münster Finance Court confirmed this suspicion in the aforementioned judgment and additionally endorsed the approach of the tax authorities’ investigations. Accordingly, the external comparison of the salaries in the instant case was compelling, as the company in question only employed internal managing directors, which made it impossible to assess the appropriateness of salary sizes. Moreover, in the opinion of the Court, benefits demonstrably existed which alone would establish the corporate relationships and therefore the employment of exclusively internal company managing directors.

Companies that employ exclusively intra-corporate managing directors, as in the case above, should therefore be cautious in remunerating this position. A lawyer versed in company law shall advise you and protect you from unpleasant investigations of tax authorities.

About GRP Rainer LLP
GRP Rainer LLP http://www.grprainer.com/en/ is an international firm of lawyers and tax advisors who are specialists in commercial law. The firm counsels commercial and industrial companies and corporations, as well as associations, small- and mid-sized businesses, self-employed freelancers and private individuals worldwide from offices Cologne, Berlin, Bonn, Dusseldorf, Essen, Frankfurt, Hamburg, Hannover, Munich, Stuttgart, Bremen, Nuremberg and London UK.

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