The term “related person” appears in various places in German tax law – for example in the Foreign and Income Tax Act. In principle, it should be noted that contracts and agreements between related persons must always withstand a special audit by the financial authorities. The background is more or less obvious, because the legislator sees here the risk of legally unwanted design models.
1st Principle: Problematics of the close person
The problem of the close person from the point of view of the legislator can be explained comparatively easily on the basis of the “Friendship Award”. Because who knows another person, for example, a business partner, may grant this particularly favorable conditions. The same also applies to persons who are more extensively involved in domestic or foreign corporations or rent real estate within their family.
In order to avoid possible distortions of competition, there are restrictions on contracts between related parties in many parts of German income tax law. These are either steered in a certain direction from the outset or are subject to a subsequent, but then particularly thorough, review by the responsible tax office. Alternatively, the legislator prescribes the conditions under which such agreements are always considered effective.
The so-called arm's length principle also plays an important role here, which we have already shed more light on in other contributions.
§ 15 AO defines the term “members”. It should be noted that in many cases, but not in all cases, relatives are automatically close persons. Special features apply in particular after a divorce of spouses, because here it is usually to be assumed that the conjugal “proximity” no longer plays a role. At the same time, however, divorced spouses still represent relatives in the sense of the AO.
2. hidden distributions of profits – related party in corporate tax law
A hidden distribution of profits, short vGA, must not have any effect on the income of a corporation (in particular a GmbH). This is regulated by § 8 (3) sentence 3 KStG abstractly, but the norm is specified in the corresponding guidelines of the law. Therefore, a vGA exists if
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.