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Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal
Certified Tax Advisor, Manager, National Office Tax & Legal
The distinction between income from the gain on the sale of shares in a limited liability company (GmbH) using the so-called partial income method and income from employment plays a significant role for shareholder-managing directors. In its ruling of March 3, 2026, case no. IX R 1/25, the Federal Fiscal Court (BFH) therefore addresses the question of which type of income the payment of a specific partial amount for the continuation of GmbH management should be classified in.
In the case in question, a managing director who held a 50% stake sold his shares in the GmbH. Included in the total purchase price of EUR 2.25 million was an amount of EUR 625,000 for continuing to manage the GmbH for a period of at least five years following the sale of the shares. The (shareholder) managing director attributed the entire purchase price to the sale of the GmbH shares and reported a taxable gain of EUR 1,005,852 under the partial income method. The tax office, however, classified the portion of EUR 625,000 as income from employment. The tax court concurred with the tax office’s position.
The BFH overturned the lower court’s ruling and remanded the case to the tax court for further proceedings and a new decision.
Whether income constitutes earnings from labor for the taxpayer - and thus qualifies as wages - or should be classified as another type of income due to a special legal relationship must be determined through an assessment that takes into account all the relevant circumstances of the individual case. In doing so, it must be clarified to which type of income the closer economic causal connection relates and whether the additionally agreed-upon benefit has independent economic significance or not.
In the present case, the decisive factor in determining the primary causal connection between the two types of income is whether the amount of EUR 625,000 was paid as consideration for the goodwill of the GmbH associated with the transferred share or as compensation for the ongoing work performed as its managing director. In this context, it must also be taken into account that the quality and stability of the management of an acquired company is, as a rule, a dependent calculation factor for the buyer in the context of overall pricing and is thus regularly included in the acquired business value. Thus, in the case in question, the buyer might not have acquired the GmbH shares without further commitment from the (shareholder) managing director, as otherwise the intended transfer of know-how would not have been possible.
From an economic perspective, it must be determined whether the purchase price of EUR 2.25 million attributable to the GmbH shares corresponded to the fair market value. Only if the purchase price exceeds this value would it be possible to classify the portion of EUR 625,000 as wages. If, on the other hand, this amount is economically absorbed into the market value of the shares, it serves rather to provide the buyer - precisely because of the retention of management - with profit opportunities and to secure them in the long term. In this case, classification as income from the gain on the sale of the GmbH shares is indicated, as the contractual obligation to continue managing the company for the agreed period is unlikely to have had any independent economic significance.
It must also be determined whether the amount of EUR 625,000 would have been paid even if the seller had not been the managing director of the GmbH himself, but rather a third party with no equity interest in the company, and that this third party had committed to continuing to work for the company.
Notice:
The tax court must now, in the second round of proceedings, make further necessary findings of fact and conduct a new overall assessment based on those findings. Reading between the lines, the following general principles can likely be inferred from the BFH ruling: In the case of a shareholder-managing director, the higher the shareholder-managing director’s equity stake, the stronger the case for a connection to the equity interest rather than to the employment relationship. In the case in question, this is likely further supported by the fact that the (shareholder) managing director was required to secure the buyer’s claim for reimbursement in the event of premature termination of the managing director’s duties through a bank guarantee. In contrast, for an employee with only a very small stake in a company, there is likely strong evidence pointing to the income from employment as the motivating factor.