Principle of proportionality: Not every minor error in use of funds is punished

Even the most conscientious Board of Management can make mistakes now and then. If the statutory requirements for the actual management activity are not met, there is a risk that public-benefit status will be revoked. Tax officials have a certain amount of discretion in many cases. They can decide, for example, whether to assess late-filing penalties if a tax return is not filed on time. This is different if, for example, remuneration that is not provided in the bylaws or excessively high remuneration is paid to a member of the board. The tax administration is obliged to take action in these cases.

Based on the case law of the Federal Fiscal Court, the Federal Ministry of Finance has issued important guidance in this context, stating that revoking an entity’s public-benefit status is not a decision made at the discretion of the Tax Office. The principle of proportionality and the exception for cases falling below a certain threshold that is inherent therein constitute a crucial corrective mechanism for ruling out the drastic legal ramifications of a loss of public-benefit status in individual cases. Minor violations, such as breaches of the requirements on use of funds, therefore do not justify revoking an entity’s public-benefit status.

Note: Since the term “minor violation” is definitely open to interpretation, you should come to us for advice to avoid liability.