No remuneration for transfer of shares free of charge in the context of business succession – Federal Fiscal Court provides clarity
Business succession is a key issue in many family businesses – legally complex, emotionally charged and often also risky from a tax perspective. A recent ruling by the Federal Fiscal Court (BFH, ruling of 16 November 2023 – VI R 1/21) now clarifies a previously controversial issue: Is it taxable income if a shareholder transfers shares in a limited liability company (GmbH) to their employed child free of charge?
The case: Succession or income?
In the specific case, a shareholder transferred shares in the limited liability company to his son, who was also employed by the company, free of charge. The tax office assumed that this constituted consideration for the work performed, i.e. wages subject to income tax. The son saw things differently – and was proved right.
The decision of the Federal Fiscal Court
The Federal Fiscal Court clarified: ‘A transfer of shares free of charge within the framework of a family-internal business succession is not to be classified as remuneration for work.’ (BFH, VI R 1/21)
The decisive factor is that the intention to make a gift was based on private, family motives – for example, with a view to continuing the business – and was not to be understood as remuneration for past or future work.
The distinction: What is ‘wages’ and what is ‘succession’? The ruling highlights an important distinction:
- Salary requires consideration in return for specific work performed.
- Unpaid transfers within the framework of family succession arrangements, on the other hand, are private dispositions of assets.
The decisive factor is therefore not the job of the recipient of the gift, but the reason for the transfer.
Practical relevance: Security for entrepreneurial families
The ruling provides important clarity for succession planning in family businesses:
- No income tax liability for family succession
- No ‘fictitious salary’ for gratuitous transfer of shares
- Transfer remains relevant for gift tax purposes
However, careful documentation of the intention to make a gift remains essential, especially in the event of subsequent tax audits.
The decision strengthens the entrepreneurial scope for family-internal succession arrangements:
- Protection against income tax liability
- Confirmation of the private nature of family gifts
- Importance of clear documentation and legal structuring
Tip: Always make a clear distinction between employment and succession – including in communications with tax authorities.
