Hidden profit distribution (verdeckte Gewinnausschüttung, vGA)
Also: verdeckte Gewinnausschüttung, vGA, constructive dividend
In short
A hidden profit distribution occurs when a corporation grants a shareholder a benefit outside a regular distribution, such as an unreasonably high salary or an interest-free loan. For tax purposes, it may not reduce the company's profit.
Hidden profit distribution (verdeckte Gewinnausschüttung, vGA) explained
Under Sec. 8 (3) sentence 2 KStG, hidden profit distributions do not reduce income. The tax office therefore adds the amount back to the GmbH's profit, and for the shareholder it is taxed like a distribution. Typical cases are an excessive managing director's salary, rents or loans on terms that an unrelated third party would not get, or private expenses paid through the company. You can prevent this with written, clear and arm's-length contracts between you and the company. This applies in particular to shareholder-managing directors and to contracts between a holding and its subsidiary. Whether a salary is reasonable is best clarified with your tax adviser.
