The customer pays into a personal account

A recent ruling by Germany’s highest tax court illustrates just how risky it can be to have customer payments credited to a personal bank account.

A limited liability company (GmbH) issued several invoices to a Spanish customer. However, the payments were not made to the GmbH’s bank account specified on the invoices, but rather to the joint account of the sole shareholder-managing director and his wife. Although 14 transfers were made from the personal account to the GmbH’s creditors as early as the day after the first payment was received, But that did not prevent the tax authorities from treating the entire amount received as hidden profit distributions (vGA) and subjecting the shareholder to taxation.

Federal Fiscal Court Confirms Tax Liability

According to the judges, a hidden distribution of profits exists when a corporation grants its shareholder a financial benefit and this grant is based on the corporate relationship. This is the case when a prudent and conscientious managing director would not have granted this benefit to a non-shareholder. If, as in the ruling, the shareholder is a controlling shareholder, the reduction in the GmbH’s assets may already be attributable to the corporate relationship even if the payment is not based on a clear agreement concluded from the outset. The judges considered the mere receipt of the payment into the private account to be a hidden distribution of profits because the shareholder had control over the funds and had thereby obtained a financial benefit at the expense of the GmbH.

Conclusion: The fact that business debts were later paid from this account did not alter the assessment. A transfer to a private account already has a negative connotation. This is likely why the court’s decision was so strict.