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Trade tax add-backs for management remuneration

Trade tax has to be determined by adjusting taxable income as calculated for income or corporate tax purposes for so-called add-backs and reductions (e.g. on account of donations). In this connection, the Munich tax court recently defined the profit shares of partners/shareholders that have to be added back.

The legal action had been taken by a partnership limited by shares (Kommanditgesellschaft auf Aktien, KGaA). The general partner, subject to unlimited liability, was B-GmbH & Co. KG [a combination of a limited commercial partnership (KG) and a private limited liability company (GmbH)] whose share of the capital of the claimant was € 0. In 2011 and 2012, the majority of the limited partners’ interests were held by G-GmbH and the remainder by natural persons. The personally liable partners of the KGaA (the natural persons) were managing directors and received appropriate remuneration (e.g. salaries and holiday pay) for this. In the course of an external audit at the KGaA, the auditor concluded that all the remuneration – and thus not just the profit-related portion – had to be added back when determining trade tax.

The legal action brought before the Munich tax court was not successful. According to the ruling from 20.2.2020 (case reference: 13 K 1151/17), adding back all the remuneration had been justifiable. In this case, the profit shares that were distributed to the personally liable partners as remuneration paid to managing directors were once again added back to income. It is unimportant here whether or not such remuneration is owed on account of a company agreement or statutes, or because of a separate (in personam) work agreement and how it is designated. Accordingly, there are no restrictions on profit-related remuneration. Furthermore, it is likewise immaterial whether the personally liable partners work as managing directors or just as employees. De facto and from an economic perspective, these managing directors carry out their functions for the account of B-GmbH & Co. KG and, in the opinion of the court, the remuneration should thus be added back. The payroll treatment of remuneration is likewise not decisive for trade tax.

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