Germany: Employee Rights/ Labour Relations

The Federal Tax Court has issued a landmark ruling on the tax treatment of earn-out payments linked to shareholder-managing directors' continued employment following a share sale. The decision establishes critical criteria for determining whether such payments should be taxed as employment income at rates up to 48% or as capital gains at approximately 28% under the partial income method.

As the year draws to a close, we are issuing our last Focus on Labour Law for 2025 with its usual overview of important labour court decisions of the last few months and updates on new legislation.

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