Recognition of a pension commitment based on deferred compensation

In the case of a pension commitment financed by deferred compensation, the tax office may not impose strict requirements for tax recognition.

According to the Düsseldorf Tax Court, the fact that a pension commitment based on deferred compensation cannot be vested does not automatically justify the recognition of a hidden profit distribution. The case in question concerned a GmbH (limited liability company) that made a pension commitment to its managing director and sole shareholder shortly after it was founded. The managing director was already 60 years old at the time, which prompted the tax office to take action. The tax office assumed that the pension commitment could no longer be earned in the remaining time until retirement and also objected to the fact that the commitment was made without a probationary period and immediately after the company was founded.

However, the Tax Court upheld the action against this view of the tax office and found that the lack of vesting did not prevent the commitment from being recognized for tax purposes. The Federal Fiscal Court had already ruled that this criterion did not apply in the case of a pension financed by deferred compensation. In such a case, the employer does not have to bear the financial consequences of the commitment and is therefore not economically burdened. For the same reason, neither the granting of the commitment immediately after the establishment of the company nor the lack of a probationary period was relevant for its recognition for tax purposes, especially since the managing director had sufficient professional experience.