The basic scenario
The shareholder-managing director of a GmbH runs the company — and therefore faces daily decisions that can touch both personal and corporate interests. Particularly conflict-prone is the situation where a managing director uses a business opportunity that should economically have benefited the company for himself or a related party instead. What constitutes a breach of fiduciary duty under civil law has an independent, often underestimated consequence under tax law: the constructive (hidden) profit distribution (verdeckte Gewinnausschüttung, vGA).
What counts as a business opportunity of the company?
A business opportunity belongs to the company where it is closely connected to the company’s business purpose and the company could realistically have pursued it. The mere fact that the managing director happened to learn of the opportunity does not make it his private matter — what matters is the factual and economic context in which the opportunity arose.
Classic examples: the managing director of a real estate brokerage acquires for himself a property that was offered to him in the course of his duties. A GmbH managing director sets up a parallel company serving the same client base. A head of procurement diverts supplier relationships to his own business.
The tax consequence: vGA without any flow of money
What is distinctive about a vGA arising from the diversion of a business opportunity is that it does not require any actual flow of money. It suffices that the company suffers an economic disadvantage caused by the shareholder relationship. The Federal Fiscal Court (BFH) has repeatedly confirmed: withholding a business opportunity in favour of the shareholder-managing director is a transfer of value to be treated like an open profit distribution — to the extent the company could otherwise have realised a benefit.
The tax consequence is twofold: at company level, the vGA is added back to taxable income (Section 8 (3) sentence 2 KStG); at shareholder level, it is taxed as investment income. The tax office therefore imputes fictional distributions — in many cases without any actual payment — on which corporate income tax, solidarity surcharge and withholding tax on capital income are then assessed.
When does the tax office’s position hold — and when not?
Not every use of a business opportunity by the shareholder-managing director automatically constitutes a vGA. What matters is whether a prudent and conscientious business manager would have directed the opportunity to the company. This depends on the company’s actual capacity: was it financially, organisationally and operationally in a position to pursue the opportunity? Was there a corresponding instruction to management, or was the field of activity even part of the company’s business purpose at all?
In objection and court proceedings, the tax office’s position can often be successfully challenged where the taxpayer can document that the company could not or would not have pursued the opportunity, that an arm’s-length comparison would not have led to a more favourable outcome, or that a corporately effective release of the opportunity had taken place.
The interface: corporate law and tax litigation
Business opportunity diversion cases are typically not pure tax disputes. Alongside the dispute with the tax authorities, there are frequently parallel corporate law damages claims by the company against the managing director (Section 43 GmbHG), potential removal proceedings and — where there are multiple shareholders — disputes over the consequences for shareholder status. Anyone focused only on the tax front loses sight of the corporate law flank. And vice versa.
Practical consequences
For shareholder-managing directors: Any business opportunity arising in the company’s context should be formally released under corporate law before being used personally — documented, resolved, traceable. Retrospective legitimisation is, as a rule, far harder to achieve than forward-looking structuring.
For companies with multiple shareholders: Clauses in the articles of association that concretely regulate non-competition and the duty to disclose business opportunities significantly reduce the potential for conflict — both vis-à-vis the tax office and in disputes between shareholders.
In ongoing tax disputes: The valuation of the diverted opportunity is the central point of attack. Tax offices tend to value opportunities on a flat-rate basis; a differentiated economic analysis that realistically prices in actual feasibility and achievable benefit can often substantially reduce the assessed amount.
This article presents a simplified overview of the legal position and does not replace advice in individual cases.