Date:
This article was written by
Certified Tax Advisor, Director, National Office Tax & Legal/Quality Assurance
Consultant, National Office Tax & Legal
The provision of a car for private use between a limited liability company (GmbH) and its shareholder-managing director is subject to strict criteria due to the alignment of interests between the parties involved. In the case of the private use of a company car, it must be assessed whether this constitutes taxable remuneration, to be assessed under certain conditions in accordance with the so-called 1 % rule, or a hidden profit distribution within the meaning of section 8 (3), sentence 2 of the German Corporation Tax Act (KStG). The latter is a reduction in assets or a prevented increase in assets resulting from the corporate relationship, which affects taxable profit and is unrelated to an open distribution. At the level of the GmbH, it must be added back to income off-balance sheet in the amount of its so-called fair value – the remuneration that an unrelated third party would pay for the service in question. At the shareholder level, the hidden profit distribution results in income from capital assets – where applicable, subject to the partial income method.
In the case of controlling shareholders, it is generally sufficient for a hidden profit distribution to be deemed to exist if agreements were not entered into in advance in a clear, unambiguous and legally valid manner under civil law. If the business assets of GmbH include a company vehicle, established case law provides prima facie evidence that its shareholder-managing director also uses it for private purposes if there is unrestricted access to the vehicle and no arm’s-length usage agreement is in place.
In its decision of December 17, 2025 (case no. I B 17/24), the German Federal Fiscal Court (BFH) clarified whether a ban on the private use of a company car by the shareholder-managing director and his sister justifies a prima facie case of private use, resulting in a hidden profit distribution.
L was the sole shareholder-managing director, whilst his sister R was an employee of a GmbH. During the years of dispute 2015 to 2017, the company owned four high-value cars. Their exclusive use for business purposes had been agreed by shareholder resolutions; no logbooks were kept. Following an external audit, the tax office assessed a hidden profit distribution on the basis of (unauthorised) private use by L and R of the cars held in the GmbH’s business assets, and estimated the amount to be added off-balance-sheet at 25 % of the total net expenses (depreciation, insurance, running costs, repair costs), specifically 20 % for private use plus a 5 % profit margin. The BFH ultimately upheld the assessment of a hidden profit distribution.
Although the Sixth Senate of the BFH, which is responsible for income tax matters, has consistently held since its landmark ruling of April 21, 2010 (case no. VI R 46/08), that the private use of a company car by an employee – and thus a monetary benefit – only exists if the vehicle has been made available for private use and no corresponding prohibition has been agreed.
However, this specific prima facie evidence cannot be applied to similar cases involving a sole or controlling shareholder-managing director. The absence here of the conflict of interests between the company and the shareholder – a conflict that is otherwise customary between employer and employee – justifies, based on general life experience, precisely the prima facie evidence that a sole or controlling shareholder-managing director also uses a company car made available to him for private rides. This also applies where either no contractual agreement on private use has been concluded or where a prohibition on private use has been expressly agreed in the managing director’s employment contract; this is particularly likely to be the case where no logbook is kept and no organisational measures have been taken to prevent the private use of the vehicle. In this case, the First Senate, which is responsible for corporation tax, has thus confirmed its previous case law.
Notices:
In its reasoning, the BFH leaves open the question of whether the (unauthorised) private use of a company car by a person closely related to the shareholder-managing director – such as a spouse, children or other relatives – can, under certain conditions, also lead to a hidden profit distribution. The tax authorities will proceed in this manner where possible. In practice, therefore, the utmost care must be taken in situations similar to the one in dispute.
This prima facie evidence may be rebutted by a properly and comprehensively maintained logbook and organisational measures that preclude the managing partner or persons closely associated with him from having unrestricted access to the company car (e.g. the obligation to park the car on the company premises and to hand over the keys and vehicle documents to a designated office responsible for company vehicles).