The biggest mistakes in management investments

Management shareholdings are standard in management buyout (MBO)/leveraged buyout (LBO) transactions carried out by financial investors. The goal of financial investors is to homogenize interests with management. Employees are to become entrepreneurs. The implementation of managementThe development of the investment market has become increasingly professional over the last 20 years. Nevertheless, in practice, mistakes are made time and again, both in the process and in the concrete structuring, which can mean that the actually positive effect of management involvement does not come to fruition or even turns into a negative.

In its decision of October 4, 2016 (IX R 43/15, BStBl. II 2017, 790), the Federal Fiscal Court has now finally confirmed the taxation of management shareholdings as capital assets. This puts a stop to the increasing tendency in the tax authorities to qualify such income as wages.

This decision should now remove the basis for the frequent tax administration practice in recent years of qualifying profits from management shareholdings as wages and salaries. This applies in any case to the extent that the management shareholdings correspond or come close to the case decided. In the opinion of the Federal Fiscal Court, the following criteria are essential for the qualification as capital assets: