GER: Does Gifting Company Shares Result in Taxable Salaries?

Feb 14, 2024 Benn-Ibler Rechtsanwälte

The transfer of company shares as a gift to senior employees for the purpose of securing a company’s succession does not automatically result in taxable salaries in the case of income from work according to Section 19 (1) sentence 1 no. 1 of the German Income Tax Act (Einkommensteuergesetz, EstG), according to the German Federal Fiscal Court (Bundesfinanzhof, hereinafter BFH).

In the case at hand, the plaintiff had worked for many years in the management team of a company in the field of sales and human resources. In 2013, a shareholders’ meeting was held where the topic was company succession. In the minutes of the shareholders’ meeting it was recorded that the plan was to transfer the shares as part of succession arrangement intended to ensure the continuation of the company. The transfer of shares was to take place firstly to the son of the two shareholders and secondly to the plaintiff and other members of the management board with the company to be managed by the plaintiff.

The tax authorities considered the monetary benefit from the gift-like transfer a salary and taxed it, so the employee (who was the recipient of the gift) took legal action to challenge this.

The lower court disagreed. From an objective point of view, the advantage resulting from the transfer of the shares in the company did not constitute income from the employee’s work.

This opinion was upheld by the BFH.

Even if the transfer of shares was related to the plaintiff's employment relationship, it was not caused by it. The reason for this is that the main motive for the transfer was obvious to all parties: Regulating succession within the company. In this situation, the benefit resulting from the transfer by way of gift does not constitute remuneration for services provided by executives.

If an employee share is not transferred at the market price, then the advantage lies in the discount that is granted compared to the market price. But a ‘wage’ implies that employees receive a benefit in return for their work.

BFH VI R 21/22 (20 November 2024)