According to Federal Court of Finance (January 30, 2013, II R 6/12, Federal Fiscal Gazette II, p. 930; see also Lower Saxony Court of Finance, November 12, 2014, 3 K 347/14), in case of hidden profit distributions from a corporation to its shareholder, no gift inter vivos is at hand according to § 7 para. 1 no. 1 Inheritance and Gift Tax Act (IGTA) if the shareholder is the direct beneficiary of the hidden profit distribution. Nevertheless, the Senior Directorate of Finance still holds the opinion that the hidden profit distribution is both subject to Income Tax and Gift Tax.
In contrast, the Federal Court of Finance has not decided yet if a hidden profit distribution benefitting a natural personal who is associated with the corporation’s shareholder can also be subject to Gift Tax. According to the Ministry of Finance of March 14, 2012 (Federal Fiscal Gazette 2012, pt. I, p. 331), the difference between overcharge and fair market value is subject to Gift Tax as well, based on the personal relationship of the corporation and the natural person who is associated with the corporation’s shareholder.
For more details regarding hidden profit distributions see Dusseldorf Finance Court (November 11, 2016, 4 K 1680/15 Erb).