A perfect set of statutes is not enough. For the German tax authorities, the only thing that matters is the organization’s actual day-to-day operations. Auditors pay particularly close attention to the issue of selflessness. The good news for associations and foundations in Germany is that not every mistake immediately results in the loss of charitable status. What matters is whether the conduct directly violates the strict rules of the German Fiscal Code (Abgabenordnung, AO).
Tax authorities question selflessness and deny charitable status
A legally recognized civil-law foundation established in 2015 pursued exclusively and directly charitable purposes according to its statutes. As part of the foundation’s endowment, the founder contributed not only cash, but in particular shares in a German stock corporation (AG).
However, this shareholding was tied to a voting agreement designed to maintain a close connection with a corporate group. In addition, the foundation’s statutes contained internal provisions, especially regarding the preservation of the foundation’s assets.
The tax authorities refused to recognize (or no longer recognized) the foundation’s charitable status because of doubts concerning its selflessness and its actual management. The foundation challenged this decision, first before the Bremen Fiscal Court (FG Bremen) and later in appeal proceedings before the German Federal Fiscal Court (BFH).
What matters when reviewing charitable status
The central issue was whether the foundation met the requirements for charitable status under Sections 51 et seq. of the German Fiscal Code, in particular:
- Was the foundation acting selflessly within the meaning of Section 55 AO, despite its close ties to the founder’s economic interests?
- Did the foundation’s actual management (Section 63 AO) comply with the requirements of nonprofit law?
- What are the consequences of violating provisions that are purely internal to the statutes?
Strict standards for selflessness and errors in management
a) Standard of selflessness
The BFH made clear that an entity does not act selflessly if its primary purpose is to promote the economic interests of founders, members, or related parties. Even indirect or private benefits may be harmful (for example, economic relief or other private advantages). In assessing this issue, the nature of the benefit, its scope, and the number of beneficiaries must all be considered. In doing so, the BFH reaffirmed its restrictive approach to the concept of selflessness.
b) Actual managment (Section 63 AO)
The decisive factor is whether the foundation actually directs its activities toward charitable purposes. Its management and operations must comply with the requirements set out in the statutes, insofar as those provisions are relevant to charitable status.
c) Significance of violations of the statutes
The BFH drew an important distinction: only violations of provisions relevant to nonprofit law (Sections 51–68 AO) are harmful. Violations of other provisions in the statutes (for example, rules regarding preservation of assets) are generally irrelevant for purposes of tax-exempt charitable status.
Protect your NPO from risks
The BFH emphasized that the key question is whether the foundation actually promotes private economic interests. A close connection to a corporate group alone does not automatically result in the revocation of charitable status. However, such a structure may become problematic if it leads to economic advantages benefiting the founder.
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As experts in German nonprofit law, we are here to support you. We can assist you with:
- Drafting legally compliant statutes and reviewing existing agreements for hidden risks
- Safeguarding your actual management so that your day-to-day practices can withstand any review by the tax authorities
- Defending your rights when necessary by representing you in administrative appeals against the tax authorities or before the fiscal courts
Do not take unnecessary risks when it comes to preserving your charitable status. Contact us to ensure that your structure is legally compliant and secure.
BFH, Judgment dated December 4, 2025, V R 11/24
