Bonus to directors - Transfer of business(Taxwatch (Tax news in english))
20-05-2009 13:13
Af
Hans-Henrik Nilausen
In a recent ruling, the Danish Supreme Court denied a company deduction for bonuses to directors employed by the company for work performed in connection with the sale of the company to an outside investor.
According to an agreement, the payment of the bonus was motivated by a decision made by the owners to dispose of the company and because the company wished to reward the directors for work performed and for the demanding work in connection with the coming sales efforts.
The bonus depended on the acquisition price for the business and became due, when a final and unconditioned agreement with a purchaser had been established. If the company was not sold, the agreement lapsed.
However, the company was sold and the bonus was paid to the two directors.
The Supreme Court denied the company deduction for the bonus amounts.
As also stated by the High Court in its decision, it appeared from the bonus agreement, that the directors claim for the agreed bonus, was conditioned on the final sale of the company and that the directors were still employed by the company at the time of sale of the company. Also the amount of the bonus depended on the sales price for the company.
According to the content of the bonus agreement and to the given statements, the Supreme Court found that the purpose of the agreement was to compensate the two directors for work in connection with the sales efforts and to secure that they remained employed until a final sale of the company had taken place.
Consequently, the Supreme Court found, that the bonus was not attached to the running of the company in such a manner which is a condition for the expense to be deductible as a cost.
Questions to this article can be directed to Hans-Henrik Nilausen at
hhn@bdo.dk
Please read the tax:watch 10/2009 here
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