First Statement by the Tax Administration on the Assessment of Shares with a Negative Liquidation Preference (So-Called “Hurdle Shares”)

For the first time, a German tax authority has issued a specific statement on the tax treatment of hurdle shares: In its ruling dated May 28, 2026, the Bavarian State Tax Office sets forth the conditions under which proceeds from hurdle shares are to be classified as wages—and when they are not. This provides an important framework for the practice of management participation, one that extends beyond Bavaria.