Compensation Assessment for Board Members of Associations And Foundations in Germany
Good personnel come at a cost – and this also applies to board members of charitable associations and foundations in Germany. For nonprofit purposes, board compensation must be reasonable and may not be excessive. Otherwise, the association or foundation risks conflicts with the tax authorities and jeopardizing its charitable status.
Board compensation must be reasonable
German nonprofit law imposes strict requirements: No individual within an association or foundation may receive an unreasonable benefit through disproportionately high compensation. Otherwise, this constitutes a misuse of charitable funds, which may result in the revocation of the organization’s charitable status. As part of the tax assessment process and during tax audits, the tax authorities therefore regularly review whether an improper use of funds has occurred due to excessive compensation.
Compensation assessment reports for charitable foundations and associations
In disputes with the tax authorities or before the tax court, it is beneficial if the association or foundation has taken appropriate precautions and can provide a compensation assessment report that examines the organization’s compensation situation in detail. Such a report addresses the following questions:
- Is the current compensation of the board member reasonable? To answer this question, the compensation assessment uses reliable market comparison data and internal compensation tables used by tax authorities. It also takes into account the individual circumstances of the association or foundation in order to calculate appropriate adjustments, including potential increases or reductions.
- Is a compensation increase possible?
- If so, up to what amount may compensation be increased? Compensation in the nonprofit sector is often lower than that paid by for-profit companies with comparable responsibilities. However, according to the German Federal Fiscal Court, this does not necessarily have to be the case. If the financial situation allows, ssociations and foundations often have the opportunity to increase board compensation in order to become more attractive to potential employees.
Benefits of a compensation assessment report for board members
Security:
A compensation assessment report enables charitable associations and foundations in Germany to quickly resolve any concerns raised by the tax authorities regarding the reasonableness of board compensation. The report provides legally robust documentation demonstrating that the compensation is appropriate and can withstand scrutiny by both the tax authorities and the courts. As a result, associations and foundations no longer need to fear unpleasant surprises during tax filings or tax audits.
Prevention:
If the compensation assessment reveals that the board compensation is in fact unreasonable and therefore constitutes a violation of nonprofit tax law requirements, our experience shows that the time remaining until the next tax audit can play a crucial role. The earlier an issue is identified, the sooner appropriate corrective measures can be taken to minimize potential damage – before the tax authorities become aware of the problem.
Optimization:
Compensation at nonprofit organizations and foundations often lags behind salaries in the private sector. As a result, many NPOs are at a disadvantage when competing for top talent. However, doing good and earning a competitive income do not have to be mutually exclusive. With the help of the assessment report, associations and foundations can determine whether and up to what level they may increase board compensation.
Our experts help you optimize the compensation structure of your association or foundation and establish a secure foundation for the future for a fixed fee. Please feel free to contact us.
Your attorney for executive compensation assessment in Germany
Are you unsure whether your board compensation is still reasonable? Would you like to protect your organization and prevent a potential loss of charitable status? Are you currently in a dispute with the tax authorities or a tax auditor over allegedly excessive board compensation? Our experts in nonprofit tax law and executive compensation issues for associations and foundations will be happy to assist you.
You can reach your contact person most easily by e-mail at info@winheller.com or by phone at +49 69 76 75 77 85 24. We would also be happy to provide you with a fixed-fee proposal.
Do you need support?
Do you have questions about our services or would you like to arrange a personal consultation? We look forward to hearing from you! Please fill in the following information.
Or give us a call: +49 69 76 75 77 85 24
