Disproportionate payments as gifts?

The income tax treatment of disproportionate payments has been clarified in case law and the fiscal administration; now, a Federal Fiscal Court (Bundesfinanzhof, BFH) ruling means that the focus of attention is increasingly shifting to the gift tax implications.
Recognition of disproportionate profit distributions for income tax purposes
The income tax treatment of disproportionate profit distributions was clarified in a BFH ruling of 28.9.2022 (case reference: VIII R 20/20) and a Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) circular of 4.9.2024. According to these, disproportionate profit distributions may, under certain circumstances, be recognised for income tax purposes; in this respect, we would like to refer you to our discussion in issue 10/2024 of the PKF magazine.
Disproportionate equity contribution as a gift
A response to the issue of gifting not in the case of a disproportionate profit distribution, but in the event of a disproportionate equity contribution (this would be the case if a shareholder were to make an equity contribution to a GmbH [a German private limited company] that did not conform with their respective ownership percentage) was provided by the BFH in its ruling of 10.4.2024 (case reference: II R 22/21) to the effect that a disproportionate equity contribution could be deemed to be a gift from the shareholder who makes the contribution to the other shareholders.
The BFH justified its view that in such cases this would constitute a gift by invoking Section 7(8) of the Inheritance Tax Act (Erbschaftsteuergesetz, ErbStG) if, through the disproportionate equity contribution, the shares in the company of the other shareholders increase in value. Given that in Section 7(8) ErbStG the law simulates gifting, in the view of the BFH, it does not matter whether or not the payment by the shareholder is made out of generosity.
A disproportionate profit distribution likewise regarded as a gift?
However, whether or not it should be accepted that a disproportionate profit distribution constitutes a gift between the shareholders of a GmbH is still being debated.

The argument against gifting is that the assets of the other shareholders are not depleted because the payment (profit distribution) comes from the GmbH. Furthermore, there is no statutory provision with a rationale for gifting such as the law provides with Section 7(8) ErbStG for a constructive equity contribution.

An argument in favour of gifting is that, from an economic perspective, the other shareholders enrich the benefiting shareholder. If, in addition, the shareholders have a willingness to be generous then this would support the view that gifting had taken place.
In the past, the fiscal administration has expressed the view that in cases of non-performance-related disproportionate profit distributions this may be deemed to be gifting. While the relevant BMF circulars have meanwhile been withdrawn, it is nevertheless doubtful that the fiscal administration has therefore also abandoned its legal interpretation.