The Regional Court of Munich I recently found that the 2017 and 2018 financial statements of Wirecard AG are void. This also includes the already made profit distributions and bonus payments to top managers of Wirecard AG without legal basis. If no regular financial statements are available, the essential basis for a regular decision on the use of profit is missing. Thus, Wirecard AG is now entitled to reclaim the payments received unauthorized by the recipients. However, this also has tax consequences. After all, the payees have long since submitted their tax returns, in which they declared their dividend income. Of course, the Treasury has already received the taxes on this. In principle, these incorrect taxes can be corrected on the basis of the new facts brought about by the court ruling. However, we must also pay attention to the time limit, which is important as a limitation period.

Wirecard AG was once a DAX group that many private investors in particular trusted for a long time. After all, the Group’s stock market value was even many billions of euros a few years ago. This was also due to the fact that the economic success of the company was enormous. Or rather, he was portrayed that way. Because the balance sheets were manipulated and apparently showed profits that had no real basis. However, the auditors responsible for auditing the books had apparently missed this. They audited all the financial statements to which the general meetings subsequently referred in order to determine the use of profit, ignoring the true situation.

When the truth about debit bookings of about 1.9 billion euros was revealed in 2020, the share price first collapsed and then the entire Wirecard Group collapsed. Board members are now suspected of having committed fraud and balance sheet falsification, among other things. However, the shareholders suffered a financial disaster due to the enormous price loss. It is therefore also understandable that many former shareholders are now trying to sue for part of their losses via legal action. In particular, the auditing firm EY, which was involved in the audits at the time, is the focus here.

In this context, insolvency administrator Jaffé took a rather unusual approach. Insolvency administrators usually try to obtain the liquid funds by way of an insolvency challenge. Since this seemed too complex and too little promising in the case of Wirecard, it was decided instead to obtain the nullity of certain financial statements. Thus, a corresponding application was submitted to the competent regional court Munich I for assessment. On 05.05.2022, the Court of First Instance ruled in its judgment that the conditions for annulling the 2017 and 2018 financial statements were indeed met.

More specifically, the focus in this court case was neither on the balance sheets of all companies affiliated to the Wirecard Group nor in the consolidated financial statements. Rather, the court only considered the financial statements of Wirecard AG itself. This is precisely where the basis for the patently inadmissible profit distributions lay.

But what exactly means that the financial statements of Wirecard AG for the years 2017 and 2018 are void? Well, this means that Wirecard AG can show its valid financial statements for 2017 and 2018. Consequently, the legal basis for a proper resolution in the general meeting on the use of profits had never really been effective. Ergo, the profit distributions were also made without the necessary legal basis. Neither the shareholders who received EUR 0.18 per Wirecard share in 2017 and EUR 0.20 per Wirecard share in 2018, nor the board members whose bonuses were also based on profit, received their payments legally.

Conversely, however, this means that the insolvency administrator can now reclaim these payments on the basis of the court ruling. After all, about EUR 47 million were distributed to dividends alone. This could satisfy at least some of the outstanding claims of the creditors against Wirecard AG. It is therefore to be expected that, next, the former shareholders and all other recipients of unauthorised payments will receive mail from Mr Jaffé containing the request for repayment. However, the judgment is not yet final at the time of these presentations.

In addition to the legal consequences, the judgment of the Regional Court of Munich I also has tax implications, albeit in an indirect way. Because the payments received as dividends or bonuses were duly taxed by the taxable recipients at that time. But Wirecard AG has also paid corporate and business tax on its, as we now know, apparently invented profits. Consequently, a recovery of these taxes is understandable, at least according to the sense of justice of the general public. However, one must also observe some legal regulations of the tax law.

For taxes there exists in § 169 paragraph 2 sentence 1 AO a general four-year fixing period, which also constitutes a limitation period. According to § 170 (1) AO, it begins after the expiry of the calendar year in which the tax was incurred. By way of derogation, according to § 170 paragraph 2 no. 1 AO, it begins at the end of the year in which a taxpayer has submitted the tax return.

Another option that you may be able to use to change a tax return if necessary is accompanied by restrictions in the tax assessment. In fact, if the tax administration issues a tax notice subject to verification, this will impede the period for its determination up to the time when an examination of a fact to be examined takes place or when the tax administration revokes the reservation of verification.

So if you are affected by a repayment of the allegedly received Wirecard dividend, you should see whether the capital gains tax paid on it and other related taxes (solidarity surcharge, church tax) can be recovered in one way or another as described above.

For small shareholders, the repayment is likely to be less financially important. After all, you have to repay EUR 0.38 per Wirecard share, which amounts to just EUR 38.00 for 100 shares, for example. Rather, the annulled Wirecard accounts are likely to be seen as a further humiliation. But in this case it is rather the former major shareholders and board members who benefited the most from the lush dividends and bonuses at that time, who should now hardly be enthusiastic about the repayments.

But the creditors of Wirecard AG should be happy about the recovery of the invalid payments and the corporate taxes paid on the profit. However, even if the insolvency administrator is able to collect the entire amount, the outstanding debts should significantly exceed this amount.

But also all former investors, who see themselves bruised by the alleged fraud of their savings invested in Wirecard AG and now as plaintiffs demand redress from the auditing company EY, face an uncertain outcome of the legal investigation. Finally, EY has an army of competent lawyers at its disposal, who will certainly do everything possible to reduce the financial damage to the company as much as possible.

The people accused in this case also have an uncertain future ahead of them. This includes CEO Markus Braun and two other top managers at Wirecard AG. CEO Braun has been in custody for almost two years. He must be accountable in court this year. And then there would be Chief Sales Officer Jan Marsalek. He settled shortly after the discovery of the booking discrepancies apparently abroad and is now fleeting. Although you are looking for him with an international arrest warrant, it could be that you will have to wait a while for a search success.