For many companies, assuming social responsibility and engaging in charitable causes is a matter of course. One of the most widespread forms of engagement is making corporate donations.
Like private donations, corporate donations are also tax deductible - technically. In practice, however, German tax offices and courts often treat corporate donations to "affiliated" NPOs as non-tax-deductible hidden distributions of profits. The result: An unjustified discrimination of corporate donations compared to donations from private individuals, which we criticize from a legal and sociopolitical standpoint.
According to Section 9 (1) Clause 1 No. 2 of the German Corporation Tax Act (Körperschaftsteuergesetz, KStG), corporate donations to nonprofit organizations - regardless of whether the donation is in cash or in kind - are deductible up to a total of 20 percent of income or 4 per thousand of the sum of total sales and wages and salaries spent in the calendar year, provided that the companies can present the appropriate donation receipts to the tax office. These limits correspond to the limits that apply to donations by private individuals pursuant to Section 10b of the German Income Tax Act (Einkommensteuergesetz, EStG).
At first glance, the legal situation seems clear: As soon as a company makes a donation, it can claim it for tax purposes within the statutory donation deduction limits and thus reduce its tax burden. In practice, however, tax offices and courts, instead, often treat corporate donations to "affiliated" charitable institutions as non-tax-deductible hidden distributions of profits:
Tax offices and courts in Germany often justify the existence of hidden distributions of profits with the argument that the corporation only made the donation because there is a special relationship of closeness between its shareholders and the NPO as the donation recipient. According to the case law of the German Federal Fiscal Court (Bundesfinanzhof, BFH), the following criteria indicate a special relationship of closeness:
The restrictive practice of the tax authorities in reinterpreting corporate donations as hidden distributions and thus denying the donation deduction is, in our opinion, both legally and sociopolitically misguided:
In view of the tax risks currently associated with corporate donations, many companies are switching to sponsorship. Sponsorship, however, can be particularly disadvantageous for NPOs as recipients:
Donations are not subject to such risks, or only to a significantly lesser extent. It is therefore hardly surprising that affected NPOs only consider sponsorship in a more limited scope and continue to rely on donations as their main means of fundraising. Companies seeking to do good should therefore ensure that their contributions are recognized as donations for tax purposes.
We help companies donate to nonprofit organizations in Germany. Our team of experienced tax advisors and tax lawyers will be happy to help you minimize the risk of a hidden distribution of profit and ensure that your contributions are recognized as donations for tax purposes. Our range of services includes, for example:
Do you want to ensure that the tax office recognizes your company's contributions as donations for tax purposes? Is the tax office unwilling to recognize your company's contribution as a donation, qualifying it as a hidden distribution of profits instead? Would you like to avoid the consequences of a hidden distribution? Please feel free to contact us. Your contact persons at our company are
We are easily reached per e-mail (email@example.com) or telephone (+49 69 76 75 77 80).