Redemption of Shares Without Compensation – A Controlled Transaction?

In its oral justification, the NSA stated that the redemption of shares should be regarded as a business transaction in which the company not only organizes the process but also participates as a party to the transaction. When assessing the nature of the redemption, it is crucial to consider the relationships between the shareholder and the company, both in terms of financial and corporate ties.

Why Does Redemption Without Compensation Raise Concerns?

The NSA pointed out that voluntary redemption without compensation deviates from standard market mechanisms. A shareholder relinquishes future dividends and the reimbursement of share acquisition costs, which may suggest that the transaction terms were influenced by existing ties.

This position aligns with previous NSA case law. In its ruling of November 28, 2023 (case no. II FSK 255/21), the court emphasized that the voluntary transfer of property rights without compensation is not a natural business practice, especially when it results in the increase of financial and corporate rights of other shareholders.

Implications for Businesses

Recognizing redemption of shares without compensation as a controlled transaction means that companies must comply with transfer pricing regulations. This includes the obligation to prepare transfer pricing documentation and analyze the transaction terms for compliance with the arm’s length principle.

Additionally, on March 19, 2025, the NSA issued another ruling concerning the same capital group (case no. II FSK 791/22), explicitly stating that voluntary share redemption without compensation falls within the definition of a controlled transaction. However, since the oral justification was relatively brief, it is advisable to wait for the official written explanation before forming a final assessment.

The NSA consistently upholds its stance that the redemption of shares without compensation constitutes a controlled transaction. Companies considering such actions should carefully analyze their tax implications and take into account the obligations arising from transfer pricing regulations.