A distribution of profits by a company to its shareholders whereby a shareholder receives a higher dividend than he should receive according to his shareholding in the company and another shareholder receives a lower dividend than he should receive according to his shareholding in the company can be made for various reasons. The federal tax court has previously ruled that such dividends that are disproportionate from the participation in the company are accepted for tax purposes and does not constitute tax avoidance even if undertaken for tax purposes. This ruling of the federal tax court has been accepted as a prevailing precedent in subsequent tax proceedings before lower tax courts.

Generally, the tax authorities do not like these rulings. The ministry of finance published a circular letter on 17 December 2013 which summarizes several criteria which have to be fulfilled before disproportionate dividend distributions will be accepted by tax authorities. These criteria are more strict than what has been accepted by the tax courts.

The criteria includes:

  • If the company is a limited liability company ("GmbH") then the disproportionate dividend has to be expressly provided for in the articles of association or the articles of association have to expressly allow for the shareholders to pass a resolution permitting such distribution.
  • If the company is a stock corporation ("Aktiengesellschaft") then the articles of association need to expressly provide for a dividend distribution that is disproportionate to the shareholding structure. A clause permitting the stock corporation shareholders to approve such distribution is not sufficient.
  • The disproportionate dividend distribution must be made for remarkable economic and reasonable reasons which are not focused on tax advantages.