Business affiliations, family and the irrebuttable presumption: chaos and uncertainty in dealing with family ties

Introduction

The discussion about the irrebuttable presumption of joint action where there are family connections in business affiliations continues to cause confusion and considerable legal uncertainty with regard to their final accounts. In particular, the publication of the new guidelines by the Federal Ministry of Economics and Technology (Bundeswirtschaftsministerium, BMWK) on 19 July 2024 has not made the situation any easier, but has led to more controversial issues instead. The current practice of the granting authorities remains confusing.

Irrebuttable presumption or just a general rule?

Until mid-2024, the general rule of the granting practice was that family ties (for instance between spouses, parents and children or siblings) were always regarded as the basis of a business affiliation. This irrebuttable presumption (unwiderlegbare Vermutung) in many cases led to businesses being classified as affiliated although they operated independently.

With the new guidelines of 19 July, the BMWK appears to have watered down this general principle. It no longer speaks of an irrebuttable presumption, but merely of joint action to be 'generally' assumed where there are family connections. At the same time, it emphasises that atypical cases must be taken into account.

This statement, however, raises new questions:

• What is an atypical case? The guidelines do not provide any clear criteria as to which constellations could deviate from the general rule.
• Legal uncertainty: granting authorities and applicants must assess for themselves whether their situation constitutes an atypical case, something that will inevitably lead to inconsistent assessments and legal disputes.

Moving backwards: practice in Bavaria and other German federal states

While the BMWK gives the impression that the irrebuttable presumption has been abandoned, policies practiced in Bavaria point in a completely different direction. A circular from the Chamber of Industry and Commerce for Munich and Upper Bavaria dated September 2024 confirms that:

• The concept of the irrebuttable presumption still applies in Bavaria.
• No atypical cases are recognised, unless the individuals involved are travelling showpeople or divorced spouses.

This directly contradicts the BMWK's stance that administrative practice must leave room for deviating decisions. It becomes clear that the implementation of the guidelines continues to depend heavily on the regional granting practice, which can lead to considerable distortions of competition.

Other German federal states have not yet taken a clear position on what could be an atypical case either. We see different statements on the issue in practice. As a rule, atypical cases should be cases that deviate so far from the standard that it would be disproportionate to rely on the presumption. The question of when this should apply, however, remains completely open.

Conflict: guidelines and administrative practice

The inconsistency between the BMWK guidelines and regional practice reveals a fundamental conflict:

• BMWK position: in our view, the FAQs and the guidelines are intended to ensure uniform administrative practice nationwide and fair competition between companies. The granting authorities, however, dispute this, arguing that only their administrative practice matters.
• Granting authorities: administrative practice is defined at state level and the FAQs are not regarded as binding law.

This contradiction poses a dilemma for companies and tax consultants: should they rely on the BMWK's nationwide interpretation or strictly adhere to the statements of the regional granting authorities?

Practical consequences and risks for tax consultants

The legal uncertainty surrounding the topic of business affiliations entails considerable risks, particularly for tax consultants who advise their clients on these issues. Typical challenges:

1. Incorrect assessment of an atypical case: tax consultants run the risk of misclassifying family connections, which can lead to repayment claims and potential liability claims.
2. Ignoring the administrative practice of the relevant federal state: even if the BMWK guidelines formally apply, the granting authorities decide on the basis of their own administrative practice.
3. Neglected documentation: without clear and full documentation, including cover letters or expert opinions, clients have almost no protection against claims for repayment.

Recommendations

• Cover letter: every application or final account statement should be accompanied by a legally sound cover letter detailing the individual situation. Such letter can (and should in many cases, especially in contentious ones) also be submitted later. Tax consultants' chambers have informed their members that it is important to justify any deviation from established administrative practice in writing.
• Obtain an expert opinion: in complex cases, an experienced lawyer should be involved to minimise risks.
• Be honest: all relevant family connections and business structures should be disclosed to avoid later sanctions.

An outlook on possible legal developments

The inconsistencies between the FAQs, the new guidelines and regional practice will inevitably end up in court. It is foreseeable that these disputes will go as far as the German Federal Administrative Court (Bundesverwaltungsgericht) or even the European Court of Justice. The focus is particularly on the following question:

• Binding nature of the FAQs: are the guidelines of the BMWK actually binding or can granting authorities set their own rules?
• Is the current practice compatible with constitutional law, in particular Article 6 of the German Basic Law (Grundgesetz) (protection of marriage and family) and Article 3 of the Basic Law (principle of equal treatment)?
• Is the interpretation of the granting authorities compatible with EU law, especially EU fundamental rights?

Tax consultants and companies should therefore be prepared for lengthy disputes and document their cases as well as possible. Experienced lawyers should be consulted in the event of queries from the granting authorities on the subject of business affiliations and families.

Conclusion

The confusion about the irrebuttable presumption for business affiliations once again shows the challenges and uncertainties in dealing with the temporary coronavirus aid. Companies and tax consultants must adapt to regional deviations and at the same time keep an eye on the BMWK's nationwide line.

It is essential for tax consultants to comprehensively inform their clients and to obtain legal support in order to minimise potential liability risks. You can also use the temporary aid network to exchange information with other experts and keep up to date with the latest developments.

We at ADVANT Beiten will be happy to assist you. Please feel free to contact us at any time.

Dennis Hillemann
Tanja Ehls