Donation to charitable foundation as hidden profit distribution

Large donations to a foundation established by the shareholders can be a hidden profit distribution.

In principle, donations are tax deductible. However, tax recognition as a donation does not preclude the existence of a hidden profit distribution, as confirmed by the Federal Fiscal Court. Donations made by a GmbH to a charitable foundation set up by the shareholders can therefore lead to a hidden distribution of profits by the GmbH. A hidden profit distribution can also exist if the donation is not made directly to the shareholder, but to a person close to him. Such a related party may also be a charitable foundation. However, the ruling by no means means that every donation by a GmbH to a foundation of the shareholders would be problematic. The decisive factor is not least the scope of the donation activity.