“More Take-Home Pay, Less Risk” - Properly Taxing Bonuses for Partner-Managers
Bonuses are an effective tool for directly aligning shareholder-managing directors with the company’s success. They create performance incentives, foster entrepreneurial thinking, and enable flexible, performance-based compensation. However, it is precisely this strength that makes bonuses tax-sensitive: While standardized bonus models are often sufficient for employees, bonuses paid to shareholder-managing directors are subject to particularly critical scrutiny.
Two questions are central: Is the structure “arm’s length,” meaning it would be agreed upon with an external managing director, and were the receipt, due date, accounting, and documentation implemented in a way that would withstand an audit? If mistakes are made here, there is a risk of additional income tax assessments, adjustments to corporate and trade tax, disputes over hidden profit distributions, and, not least, personal liability risks for those responsible.
Why bonuses for shareholder-managers are a particular focus
In the case of shareholder-managing directors, several roles converge in a single person: corporate officer, employee, and shareholder. Every form of compensation is therefore examined through the lens of the arm’s-length principle. The tax authorities assess whether an independent external managing director would have received the same terms under the same circumstances. Furthermore, income tax, corporate income tax, and business tax are closely intertwined; a correction in one area often triggers chain reactions in other tax categories.
By Stefan Sperandio, Johanna Wolter, Silas Rosing, and Khuong Lena Nguyen Ngoc
Corporate Fitness - Certificate of Participation for Tax Exemption of the Prevention Component
The Bavarian State Tax Office denies tax exemption for the prevention component under Section 3 No. 34 of the Income Tax Act (EStG) if no certificate of participation from the employee is available (Decision of March 4, 2026, Ref. No. S 2334.1.1-64/13 St36).
Income Tax Principles
In our November 2026 newsletter, we provided information on income tax principles, including the tax exemption under Section 3 No. 34 of the German Income Tax Act (EStG). We are aware that, in the past, tax offices have issued positive rulings regarding the potential applicability of the aforementioned tax exemption to the prevention component of prevention courses on topics such as exercise, nutrition, stress management, and addiction prevention.
By Stefan Sperandio and Ifza Syed
“Church Tax Optimization” by Leaving the Church Shortly Before a “Cash Event”? - What You Need to Know
The Münster Fiscal Court (judgment of Oct. 24, 2025 – 4 K 924/23 Ki; appeal pending, BFH Ref. X R 5/26) has ruled: The twelfth-part rule under Section 5(2), Sentence 1 of the Church Tax Act of North Rhine-Westphalia (KiStG NRW) is constitutional. High one-time income - such as from employee stock ownership plans - may therefore be subject to church tax on a pro-rata basis despite leaving the church during the current year. Anyone who believes they can completely avoid church tax by “leaving the church shortly before the cash event” runs the risk of coming up empty-handed.
The twelfth rule for church tax - the “hidden” risk
According to Section 5(2), Sentence 1 of the KiStG NRW, in cases where the obligation to pay church tax does not exist for the entire year, one-twelfth of the annual church tax is levied for each month of church membership. The basis for this is a notional annual church tax, calculated on the basis of all income for the assessment period—regardless of whether this income is received before or after leaving the church. The twelfth rule applies not only in North Rhine-Westphalia but also in some other federal states.
By Stefan Sperandio, Johanna Wolter, and Silas Rosing
Employment tax treatment of (electric) bicycles - classified as motor vehicles - for private use
Company bicycles and e-bikes have become standard features of modern mobility concepts. More and more employers are providing their employees with (electric) bicycles. According to Section 3 no. 37 of the German Income Tax Act (EStG), their provision is only exempt from employment tax if they are not motor vehicles. But what are the employment tax implications if they are classified as motor vehicles?
For classification purposes: Electric bicycles are considered motor vehicles if all of the following applies:
- the rated continuous power of the motor exceeds 0.25 kWh,
- the maximum speed exceeds 25 km/h (e.g., S-Pedelec), and
- the motor can propel the vehicle even without the pedal assistance.
Such vehicles are generally subject to mandatory insurance; in particular, motor vehicle liability insurance and an insurance license plate are required.
By Stefan Sperandio, Johanna Wolter, Silas Rosing, and Khuong Lena Nguyen Ngoc
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