Supplementary income and pension for shareholder-managing directors? The Federal Fiscal Court is slowly coming closer to reality.

Not every shareholder-managing director can or wants to retire at the planned time. Particularly in SMEs, it is difficult to find a suitable successor and the shareholder-managing director is needed longer than planned. Often, a pension has been promised and the pension event occurs because a fixed age limit has been reached. Due to the continued work, the shareholder-managing director would therefore have to be paid a pension and current salary at the same time.

This is not a problem for salaried employees. However, according to the practice of the tax authorities and the established case law of the Federal Fiscal Court, in the case of a shareholder-managing director, the pension benefit paid must be taken into account as a hidden profit distribution to increase income because it is not customary. This is because a prudent and conscientious manager of a corporation would have demanded that either the income from the continued activity as a managing director be offset against the pension payment or that the agreed due date of the pension payment be postponed until the beneficiary has finally given up his function as managing director (arm's length principle).

From: Alexander Schaub and Mario Mitrovic