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Table of Contents

1. General
2 loan agreements between relatives
2.1 General principles
2.2 Tax implications of a loan agreement between close relatives
2.3 Loan agreements between companies and relatives of shareholders
3 intercompany loans
4 loans in business assets
4.1 Loans in the event of a business split
4.2 Interest-free loan in business assets
5 Inflow and outflow principle
6 education loans
7 Employer Loans to Employees
8 Loans between shareholder and company
9 Loan default as subsequent acquisition costs
10 loans to finance special expenses
11 Loans to finance extraordinary expenses
12 Differentiation between loan and advance payment
13 Loan or Donation
14 Bibliography
15 Related Lexicon Articles

1. General

A loan (also credit) is a contract under the law of obligations in which a lender or lender temporarily allows a borrower to use money (banknotes, coins, book money) or justifiable items (loan in kind). Monetary loans are regulated under civil law in §§ 488 ff. BGB: The loan agreement obliges the lender to provide the borrower with an amount of money in the agreed amount. The borrower is obliged to pay interest owed and to repay the loan made available when due. Unless otherwise stipulated, the agreed interest is to be paid at the end of each year and, if the loan is to be repaid before the end of a year, upon repayment. The main obligation of the borrower is to pay interest. Loans in kind are listed in §§ 607 ff. BGB. The tax treatment of the loan is essentially dependent on whether the loan receivable / liability is to be allocated to business assets or private assets.

In the case of loans in foreign currency, the interest income or interest expenses must be converted using the current exchange rate.

2. Loan agreements between relatives

2.1. General principles

In a letter dated December 23, 2010 (BStBl I 2011, 176), the BMF commented on the tax recognition of loan agreements between relatives and replaces the previously applicable BMF letters of December 1, 1992 (BStBl I 1192, 729), of December 25, 1993 ( BStBl I 1993, 410), from May 30, 2001 (BStBl I 2001, 348) and from April 2, 2007 BStBl I 2007, 441). Accordingly, relatives are fundamentally free to structure their legal relationships with one another in such a way that they are as favorable as possible in terms of taxation. However, the following prerequisites must be met for a loan agreement between relatives to be recognized under tax law (cf. BMF of December 23, 2010, BStBl I 2011, 176, Rz. 2–9):

  • The loan agreement must have been concluded with effect under civil law. Legal representation by the parents is particularly limited in the case of contractual constellations between parents and children (cf. Schoor, NWB 2011, 2650). Section 181 BGB prohibits so-called self-dealing. The regulation aims to prevent different and conflicting interests from being represented by one and the same person, because such an occurrence always entails the risk of a conflict of interests and thus damage to one or the other part. If the parents want to conclude a contract with their child, they cannot represent the child in this regard. The law also prohibits the representation of the child by the guardian in a legal transaction between his spouse, life partner or one of his relatives in a straight line on the one hand and the child on the other (Section 1629, Paragraph 2, Clause 1, Section 1795, Paragraph 1, No. 1 BGB ). If a parent concludes a loan agreement with their underage child, a supplementary carer must be appointed to represent the child (Section 1629 Paragraph 2 Sentence 1, Section 1795 Paragraph 2, Section 181 of the German Civil Code). The effectiveness of the loan agreement then depends on the approval of the representative (Section 108 (1) BGB). Until it is approved by the supplementary nurse, the loan contract is initially ineffective due to a lack of form (Section 1629, Paragraph 1, Clause 1 in conjunction with Section 1795, Paragraph 1, No. 1 of the German Civil Code). However, failure to comply with formal requirements under civil law no longer necessarily means that contractual relationships are not recognized under tax law, but only as an individual indication. Rather, as part of an overall assessment of several signs of evidence, a final assessment must be made (cf. May 12, 2009, BStBl II 2011, 24).

  • The loan agreement must actually be carried out as agreed.

  • The loan agreement and its implementation must correspond to what is customary between strangers (third-party comparison). In each individual case and for the entire duration of the contract, however, what has been agreed must correspond in terms of content and implementation to what external third parties would normally agree to when structuring a corresponding loan relationship, see BFH judgments of November 7, 1990 (BStBl II 1991, 291), of December 18 .1990 (BStBl II 1991, 391) and from February 12, 1992 (BStBl II 1992, 468). The benchmarks for comparison are the contractual arrangements that are customary between borrowers and credit institutions. The arm's length comparison is also to be carried out if agreements are not made directly between relatives, but between a PersGes and relatives of the partners, if the partners with whose relatives the agreements were made control the company, see BFH of December 18, 1990 (Federal Tax Gazette II 1991, 581) and from April 15, 1999 (BStBl II 1999, 524). The same applies if the controlling shareholders of a PersGes assign loan claims against the PersGes to relatives as gifts.

  • The loan agreement and its actual implementation must ensure the separation of the asset and income spheres of the relatives who conclude the contract (e.g. parents and children). A clear, distinct and flawless differentiation from a maintenance grant or a disguised donation of loan interest must be possible in each individual case and during the entire term of the contract (see BFH of November 7, 1990, Federal Tax Gazette II 1991, 291), of June 4, 1991 (Federal Tax Gazette II 1991, 838) and from January 25, 2000 (BStBl II 2000, 393). If the taxpayer also takes out a loan of DM 50,000 at an interest rate of 5% from his / her father to finance the purchase of a family home, the loan agreement does not necessarily have to be refused income tax recognition because neither an agreement on repayment has been made nor agreed Security was ordered. The deduction of the loan interest as business expenses essentially depends on the fact that the interest was actually paid continuously in accordance with the contract.

Fig .: Overview of the requirements for the recognition of a loan agreement between close relatives

The above-mentioned prerequisites for the recognition of a loan agreement between relatives are, however, less of a factual element than of an indicative effect.

The formal ineffectiveness of a contract concluded between close relatives has an indicative effect against its recognition under tax law; see BFH of February 22, 2007, IX R 45/06. If close relatives do not adhere to formal requirements under civil law, this indicates that the tax law assessment of the contract is against the will to be bound by the contract. The civil law effectiveness of a loan agreement according to margin no. 9 (BMF of December 23, 2010, BStBl I 2011, 176) prima facie evidence against the seriousness of the agreement. It only speaks against the tax recognition. This indicative effect is to be strengthened and will therefore regularly lead to the refusal of tax recognition if the parties to the contract are to blame for failure to comply with the formal requirements (in particular the appointment of a supplementary caregiver) in the case of a clear civil law situation. The administration (and Rspr., BFH judgment of 13.7.1999, BStBl II 2000, 386) considers the burden to be fulfilled if the applicability of the formal requirements for the specific individual case is not based on the wording of the law, but only through an expanded interpretation or A conclusion by analogy results, this interpretation or analogy is not immediately imposed, there is no published case that affirms such an interpretation and the analogous application of the formal requirements to comparable cases is not discussed in the generally accessible literature. In addition, the relatives must take the necessary measures promptly after recognizing the ineffectiveness or the emergence of doubts about the effectiveness of the contract in order to bring about or clarify the effectiveness. As a rule, it should be noted that immediately after the recognition of the pending civil law effectiveness, the civil law effectiveness must be brought about, e.g. through approval by a guardianship court or the appointment of a supplementary caregiver. In this case, the loan agreement would have to be recognized for tax purposes from the start (cf. Wüster, NWB 2011, 1240).

In the case of an arm's length comparison, the contractual arrangements that are customary between borrowers and credit institutions are used as a benchmark. In particular, the following requirements should be met:

  • There is an agreement about the term and the type and time of repayment of the loan.

  • The interest is to be paid on the due dates.

  • The repayment claim is sufficiently secured. The usual bank securities such as mortgage or land charge, bank guarantees, transfer of ownership of assets, assignment of claims as well as assumption of debt or assumption of debt by a third party or a relative, if the latter has sufficient assets, serve as sufficient collateral.

An arm's length comparison must be carried out for such loan agreements. For example, a loan claim that is justified as a gift is not to be recognized. Interest from a loan that is not recognized for income tax purposes among close relatives is not a business expense; for the recipient they are not income from capital assets (H 4.8 [loan relationships between relatives] EStH).

In the case of loans between relatives that are used to finance the acquisition or production costs of assets and which are therefore clearly operational or to generate excess income, tax recognition is not opposed to the fact that the loan was granted under conditions that are not customary in the individual case, as long as the current interest is paid as agreed. Even such a purchase loan, however, must be refused tax recognition if it is a disguised gift because the fixed term of the repayment-free loan significantly exceeds the average life expectancy of the lender. If the loan is at least not clearly distinguishable from a disguised donation because the term exceeds the average further life expectancy of the lender by seven years, the arm's length comparison, which is subordinate but still has to be carried out for purchase loans, takes into account the distribution of contractual opportunities and risks lack of collateral is important. Such a loan, which in the amount of 400,000 € is granted, tax recognition is to be refused if it is agreed without any security of the repayment claim for a fixed term of 30 years and only the borrower, but not the lender, has the opportunity to withdraw from the contract before this period has expired to solve; see FG Hamburg dated November 3, 2017, 6 K 20/17.

In the case of loans between close relatives that have been granted as if by a stranger after their cause, a lack of collateral must be taken into account as a criterion for the arm's length comparison; On its own, however, it does not have any significant significance for the decision (BFH judgment of August 19, 2008, IX R 23/07, BFH / NV 2009, 12, LEXinform 0588304).

In its judgment of February 19, 2002 (IX R 32/98, BStBl II 2002, 674), the BFH issued the following position on the recognition of loan relationships between parents and children (→ contracts between relatives) with a previous donation of the loan amount: If a mother gives her Underage children receive an amount of money that is promptly granted to the father as a loan to finance the purchase of a portion of the property, the father then transfers half of the property to the mother and the mother then invests an amount in the renovation of the building that corresponds to the value of their portion the granting of a loan is not abusive (different from the BFH judgment of 26.3.1996, IX R 51/92, BStBl II 1996, 443).

If the payment amount is actually not offered for payment, but only "left standing", the BFH demands express agreements on repayment and termination of this amount; Simply a reference to the statutory notice period of three months in accordance with Section 488 (3) BGB is not sufficient, see BFH of February 5, 1988, III R 234/84.

If the Stpfl. as a carer for his severely disabled brother a compensation amount paid to him in the amount of € 1.2 million to grant an interest-bearing loan to his wife, who uses the amount to replace a real estate loan for a rental property, and is the taxpayer. and not his brother as the lender according to the signed loan agreement, the spouse's loan agreement does not stand up to the arm's length comparison if, among other things, no basic securities have been provided in favor of the husband as the lender, but only a silent assignment of the rent claims has been made and the lender has made the assignment at any time can demand land charges in favor of a bank, the husband can immediately terminate the loan in the event of a change in the health situation of his severely disabled brother, the full extension of the agreed loan is not proven and the contractually agreed interest is not actually met; See FG Baden-Württemberg from December 19, 2017, 11 K 3703/16.

With the judgment of June 21, 2005 (4 K 250/01, EFG 2005, 1943), the Baden-Württemberg FG decided on the following case regarding the granting of loans between family members:

Example 1:

The Stpfl. acquired half of his aunt T's co-ownership in a two-family house that they shared. The purchase price was € 64,000. It was converted into a loan receivable with 6% interest per annum. After 10 years, the aunt was allowed to demand annual repayments of a maximum of € 2,500. At the same time, the nephew rented the apartment on the upper floor to his aunt for € 320 a month for a period of ten years. Only then was it possible to adjust the rent to the rent index.

Solution 1:

Because the monthly amounts to be paid for the debt interest (€ 320) and for the rent (€ 320) were exactly the same, the FA assumed opposing legal transactions and did not recognize the agreement. It also indicated that the lender (aunt) would no longer see the repayment.

The FG has recognized the »tax structuring«. According to this, there is expressly no misuse of design if, in connection with a transfer of ownership, the seller defers the purchase price claim from the purchaser with interest and at the same time pays rent with a rent in the amount of Debt interest agreed. In addition, the possibility that the lender no longer experiences the repayment of the loan does not lead to the loan agreement being denied tax recognition without further evidence.

The BFH decided in a judgment of October 22, 2013 (X R 26/11) that the arm's length test for loan contracts between close relatives is to be carried out differently depending on the reason for taking out the loan. If the loan has been given to the lender beforehand, a strict check is made; if it is used to finance assets, a generous examination is sufficient. In addition to the contracts between credit institutions and borrowers, what is common in the field of financial investments is used as a benchmark. In the dispute, the plaintiff ran a bakery. With a purchase agreement dated October 1, 1993, he acquired fixed assets from his father. On the same day, the two concluded a written loan agreement for the gross purchase price of the assets. Interest on the loan was 8%. Interest was paid on the remaining balance as of December 31. one year. The interest was added to the loan at the end of the year. The loan could be canceled by either side. Also on the same day, the father made the privately written promise of donation to the plaintiff's children, who were still underage, that he would give them the purchase price claim in equal parts. The plaintiff and his wife as legal representatives of their children accepted the donation. The plaintiff set up an account for each of the children in the bookkeeping system. These accounts increased by the interest income in the following years. There were no actual payments due to the loan agreements. The FA did not recognize the interest expense as a business expense. The Tenth Senate granted the revision.The entirety of the objective circumstances is decisive for tax recognition; minor deviations from the usual of individual factual features do not yet rule out recognition. The BFH distinguishes between three groups of cases: If the loan is granted from funds that the borrower has previously given to the lender, the arm's length comparison must be carried out strictly (so-called conversion cases). If the loan takes the place of a down payment owed, it is problematic if the remuneration is left without having previously offered it for payment. If, on the other hand, the loan is used to finance the acquisition costs of assets, it will be recognized for tax purposes even if it is granted under conditions that are not customary in the individual case.

The tax authorities saw themselves prompted by the judgment of the BFH to change No. 4 of their letter of 23.10.2010. According to the BMF letter of April 29, 2014 (BStBl I 2014, 809), the standard of comparison should largely be the contractual arrangements that are customary between borrowers and credit institutions, but with the restriction: »If loan agreements between relatives in addition to the interest of the debtor the acquisition of additional funds outside of bank financing also serve the interest of the creditor in a good interest-bearing financial investment, agreements in the area of ​​financial investments must also be taken into account. «As a rule of thumb, it remains to be noted that the interest rate and the modalities of interest payment and loan repayment are agreed in writing should. Years of non-payment of interest with the corresponding accumulation of the loan is problematic. In manageable circumstances, on the other hand, it is not harmful for investment loans from your own resources if the loans are not secured. High demands are still placed on the design of the loan agreements if donated funds are returned to the donor on a loan basis.

Example 2:

The Stpfl. grants his mother a loan of € 100,000. The loan is required to acquire fixed assets and must be repaid at the end of the ten-year term (maturity loan). The loan bears interest of 3.5% annually. The accruing debt interest is added to the loan amount and should only be paid at the end of the term. At a credit institute, interest of only 2% would have been granted for a comparable investment.

Solution 2:

The contract is to be recognized for tax purposes. In addition to the contracts between credit institutions and borrowers, what is common in the field of financial investments is used as a benchmark. In addition, the agreements in the area of ​​financial investments must be taken into account and thus the interest of the creditor in good interest rates. The agreement that the interest is not to be paid until the end of the ten-year period is common in the area of ​​financial investments for compounded savings bonds. The loan can thus withstand an arm's length comparison. In its letter dated December 23, 2010 (BStBl I 2011, 176, margin no. 10–16), the BMF comments on a loan claim that is justified as a gift. Accordingly, it is not recognized under tax law if relatives donate amounts of money free of charge so that the recipient can return the amount as a loan. The administration irrefutably recognizes a dependency between donation and loan, if

  • the agreement of donations and loans are regulated in one and the same document,

  • the donation is made subject to the condition that it is returned as a loan,

  • the donation is made subject to the condition precedent that it is returned as a loan.

If the donation and loan are agreed in several documents, but promptly, this does not necessarily lead to a dependency between donation and loan. Rather, the entire circumstances of the individual case must be assessed as to whether the two contracts are interdependent (BFH judgment of January 18, 2001, BStBl II 2001, 293).

If a dependency between a gift and a loan is identified, neither the agreed gift nor the return will be recognized as a loan. The recipient does not have sole and unrestricted power of disposal over the money. In the opinion of the Federal Ministry of Finance, the recipient does not have the sole and unrestricted power of disposal over the funds, as they may only use them for the purpose of returning them to the donor or to a partnership that the donor or his relatives control. The same applies if parents and underage children cannot properly separate the spheres of wealth and income. In these cases, the donation will only be carried out or recognized with the repayment or repayment of the loan. The donation is then expanded by paying the interest. Wüster (NWB 2011, 1240) questions this view: »M. E. This administrative view applies to those loans in which the interest is paid in full at the end of the loan term and is drawn by the recipient. If, on the other hand, interest is paid on an ongoing basis, it is questionable whether this legal opinion can generally be followed, taking into account Section 41 (1) AO, or whether there is no transfer of beneficial ownership in individual cases. The recipient undoubtedly bears the risk of the loss of the loan claim, just as he alone is entitled to the income and, if necessary, an assignment of the loan to a third party is possible. If one follows this legal opinion, loan agreements cannot be recognized under tax law simply because they are dependent on a gift. This legal opinion must also be questioned in the case of economically independent family members if one wishes to follow the BFH in its assessment of such loan agreements. Accordingly, both the donation and the interest payment would have to be recognized if the interest is paid regularly and both agreements are actually carried out, i.e. the loan is also repaid in order to fulfill the donation. "

The brother of the Stpfl's husband. as her brother-in-law is a close relative within the meaning of the arm's length ruling of the BFH. A loan agreement with a close relative does not stand up to the arm's length comparison if, among other things, the interest and repayment agreements made are not actually carried out (including no interest payments for years), although no binding agreement has been made on subsequent payment of the interest and repayment of the loan, collateral are missing, the lender does almost nothing to collect the interest and repayment payments outstanding for years, and if a loan is neither repaid nor reclaimed after the loan term has expired. It is not customary to pay loan interest only "in accordance with the economic efficiency and liquidity situation" of the borrower. An interest rate agreement that is not seriously intended is generally not to be recognized under tax law. This also applies to years in which (partial) interest payments are made; see FG Bremen of October 23, 2018, 1 K 206/17.

If a lawyer acts as a supplementary caregiver for underage children when concluding and executing a loan agreement with their parents, the contract must be recognized for tax purposes as a rule, because the obligation of the carer to conscientiously safeguard the carer's interests comes to the fore compared to the typically lacking conflict of interests in contracts with relatives .

2.2. Tax implications of a loan agreement between close relatives

If a loan agreement is agreed between relatives in accordance with the rules set out in the BMF letter dated December 23, 2010 (BStBl I 2011, 176) and is also recognized for tax purposes by the tax authorities, it must be checked which tax rate is to be applied to the interest income from the lending relatives. The question arises whether the credit interest at the lender corresponds to the withholding tax rate (which is often more favorable compared to the individual tax rate) in the amount of 25% subject. According to Section 32d (2) no.1 sentence 1 letter a EStG, this income does not fall under the final tax rate of 25%, but must continue to be taxed at the individual income tax rate if the creditors and debtors are closely related persons. It has not yet been clarified whether this regulation leads to the general non-application of the final withholding tax in the case of capital transfers between relatives within the meaning of Section 15 AO - in this case all loans to relatives would be exempt from the final withholding tax. In a letter dated December 22, 2009 (BStBl I 2010, 94 Rn. 136), the BMF stated that the term »related person« also includes relatives within the meaning of Section 15 AO. The background is the so-called »tax rate spread«. As a result of the changes to the JStG 2010, the exception from the withholding tax according to Section 32d (2) No. 1 sentence 1 letter a EStG only applies from the 2011 assessment period if the debtor's expenses corresponding to the investment income are operating expenses or business expenses in connection with income that are subject to domestic taxation and Section 20 (9) sentence 1 2nd half-sentence EStG does not apply.

Example 3:

The mother gives her daughter a loan of € 1,000,000. The money will be used to purchase a property that is rented for someone else's residential purposes. The loan agreement, which is undisputedly recognized, stipulates annual interest of 5%.

Solution 3:

There is an exception to the withholding tax rate in accordance with Section 32d Paragraph 2 No. 1 Sentence 1 Letter a EStG, since the mother and daughter are related parties and the daughter pays interest on the debt as income-related expenses according to Section 9 Paragraph 1 Sentence 3 No. 1 EStG can apply. As a result, the mother has to tax the interest income according to the individual tax rate applicable to her. The daughter can claim the interest paid as income-related expenses on the income from renting and leasing (with individual tax rate) to reduce tax.

In a letter dated January 18, 2016 BStBl I 2016, 85, the BMF discussed under margin no. 136 the term related person: the relationship of related persons exists if the person can exercise a controlling influence on the taxpayer or, conversely, the taxpayer can exercise a controlling influence on this person or a third person can exercise a controlling influence on both or the person or the taxpayer is able to exercise a justified influence outside of this business relationship when agreeing the terms of a business relationship on the taxpayer or the related person or if one of them has its own economic interest in generating the income of the other. Such a control relationship is to be assumed if the controlled person essentially has no room for decision-making due to an absolute dependency relationship (BFH rulings of April 29, 2014, VIII R 9/13, VIII R 35/13, VIII R 44/13, VIII R 31/11, BStBl II 2014, 986, 990, 992 and 995). The dependency relationship can be of an economic or personal nature (BFH judgment of January 28, 2015, VIII R 8/14, BStBl II 2015, 397).

A proximity relationship within the meaning of Section 32d Paragraph 2 No. 1 Letter a EStG only exists if the person relies on the taxpayer. can exercise dominant influence or vice versa the Stpfl. can exercise a controlling influence on this person or a third person can exercise a controlling influence on both or the Stpfl. is able to agree on the terms of a business relationship on the Stpfl. or the related person exercise a justified influence outside of the business relationship or if one of them has its own economic interest in generating the income of the other. The principles established by the BFH on the proximity relationship within the meaning of Section 32d Paragraph 2 No. 1 Letter a EStG at KapGes apply accordingly to PersGes; see FG Münster from February 28, 2019, 3 K 2547/18 E.

Example 4:

Spouse / domestic partner C grants spouse / domestic partner D a loan to purchase a rented property. The loan-taking spouse / partner D is otherwise penniless. A third party would not have financed 100% of D's acquisition of the property.

Solution 4:

D is financially dependent on C. With regard to the financing, D does not have its own discretion, so that C can exercise a dominant influence on D when the loan is granted. The application of the separate tax rate according to Section 32d Paragraph 1 EStG to the capital income generated by the lending spouse / partner C is excluded according to Section 32d Paragraph 2 No. 1 Letter a EStG.

2.3. Loan agreements between companies and relatives of shareholders

The arm's length comparison must also be carried out if agreements are not made directly between relatives, but between a partnership and relatives of the partners, if the partners with whose relatives the agreements were made control the company (see BFH judgment of December 18, 1990, Federal Tax Gazette II 1991, 581 and from April 15, 1999, Federal Tax Gazette II 1999, 524). The same applies if the controlling shareholders of a partnership assign loan claims against the partnership to relatives as a gift (cf. BMF of December 23, 2010, BStBl I 2011, 176, Rz. 7): The recognition of loan agreements between a partnership (→ partnerships) and adults , financially independent sons of the shareholders, for whom the loan agreements originate from funds previously donated by the shareholders, depends on the overall circumstances of the case, taking into account the arm's length comparison. The short time between the donation and the granting of a loan does not justify an irrefutable assumption that the two contracts are mutually dependent (BFH judgment of January 18, 2001, IV R 58/99, BStBl II 2001, 393, against BMF of December 1, 1992, BStBl I 1992 , 729 item 9). According to the BMF letter of May 30, 2001 (BStBl I 2001, 348), the main features of the BFH judgment of January 18, 2001 must be observed. The BFH judgment of January 18, 2001 is based on the following facts:

GmbH & Co. KG

Limited partners

H.D. at 50% each

K.D. at 50% each

1.7.05: H.D. signs a contract with his son A for a donation of € 45,000.

1.7.05: K.D. concludes a contract with his son B for the donation of € 45,000.

July 9th, 2005: 45,000 € are transferred to the sons from the company's current account. The sons are 30 or 37 years old and are not self-employed by the company. The salaries are around € 40,000 each.

17.7.05: A transfers the amount of 45,000 € back to the company's current account.

24.7.05: B transfers the amount of 45,000 € back to the company's current account.

1.9.05: The company, represented by the partner H.D, concludes a written loan agreement with each of the two sons for the amount of 45,000 €. According to the contract, interest on the loan is 9%. This agreement should also apply to future contributions to the loan accounts.

Fig .: Loan agreement between partnership and children

The BFH decided as follows:

The loan agreements and their actual implementation correspond in all respects to what is customary between third parties. A loan agreement can also be recognized for tax purposes if the value amounts come from funds that were previously given to the children by their parents (BFH judgment of December 18, 1990, VIII R 1/88, BStBl II 1991, 911).

With judgment of January 22nd, 2002 (VIII R 46/00, BStBl II 2002, 685) the BFH decided as follows: If the controlling partner of a partnership undertakes in a notarial contract to pay his child a sum of money from his loan account under the condition that it is to be made available to the company again immediately as a loan, the interest cannot be deducted as operating expenses when calculating the company's taxable profit. this also applies to longer intervals between the gift agreement and the loan agreement if there is a factual link between the two agreements based on an overall plan.

Articles of association between close relatives can - if the other requirements are met - also be recognized if the participation or the funds to be used for its acquisition are used free of charge for the relatives admitted to the company. If a typically silent (sub) participation is granted as a gift, no asset is given that the recipient can already dispose of. The recipient of the grant is only enriched when he actually receives profit distributions or liquidation proceeds from the (sub) participation; see Lower Saxony FG of September 29, 2011, 10 K 269/08.

3. Intercompany loans

If a (foreign) corporation that is not entitled to credit corporation tax grants its sister corporation with unlimited tax liability (domestic), the interest paid will only be charged in accordance with Section 8a, Paragraph 1, Clause 1, No. 2 in conjunction with Clause 2 of the KStG 1999 old version.reclassified as hidden profit distributions, even if the (joint) parent company is not entitled to credit corporation tax (BFH judgment of January 16, 2014, I R 30/12). The judgment concerns the old law (for the years of dispute 2000 and 2001 the corporation tax crediting procedure still applied). Section 8a KStG old version deals with remuneration for outside capital that a corporation with unlimited tax liability has received from a shareholder who is not entitled to credit the corporation tax, under certain conditions independently of Section 8 (3) KStG as hidden profit distributions. In the case of dispute, a German GmbH, whose parent company was a US corporation, received an interest-bearing loan from its Irish (non-corporation tax credit) sister company. The tax office wanted to record the appropriate interest as hidden profit distributions because the requirements for the application of § 8a KStG (old version) were met.

According to the judgment of the FG Köln (FG Köln judgment of 4 September 2014, 13 K 2292/10, EFG 2014, 2164), contrary to the opinion of the tax authorities for the application of the holding regulation in § 8a para. 4 KStG, it is sufficient that only a stake is held.

4. Loans in business assets

4.1. Loans in the event of business split-up

If, in the event of a → business split, the shareholders of the Betriebs-GmbH grant a loan when it is founded, the term of which is linked to the duration of their participation in the GmbH, this loan is part of their necessary special business assets (→ co-entrepreneurship) with the holding company (H 15.7 (4th ) [Loan] EStH). This also applies to an unsecured, non-cancellable loan from the shareholders of the holding partnership to the working capital company, for which interest is only to be paid at the end of the loan term (BFH of October 19, 2000, BStBl II 2001, 335).

The BFH decided as follows on the granting of a loan in the event of a business split:

Fig .: Loan granted in the event of a business split

4.2. Interest-free loan in business assets

Interest-free loans between spouses, which the borrower has agreed to use to repay liabilities of his business or his agricultural and forestry business, are to be recognized in the respective balance sheets of the business and in accordance with Section 6, Paragraph 1, No. 3 of the Income Tax Act to show the discounted value; See FG Munich judgment of June 26, 2014, 11 K 877/11. The wife made money available to her husband, among other things, for his business operations. The tax office assumed that the sums of money had been granted as a loan to finance the business and that they were also tax-deductible. Because of the interest-free nature, the loans are to be discounted at an interest rate of 5.5% in accordance with Section 6 (1) No. 3 EStG. The plaintiffs argued, among other things, that the discounting of interest-free money loans between close relatives leads to excessive taxation. There is also an unequal treatment insofar as no income is constructed in private assets or in the operational surplus calculation in accordance with Section 6 (1) No. 3 in conjunction with Section 20 EStG, but only taxpayers who are accounted for are affected. In the event of a dispute, however, there could be no discounting profit because the two loans could not be considered as business assets. Interest-free loans between family members would generally not be recognized. The loan was not secured, and an interest rate of 0% was unusual among strangers. In this regard, the FG decided that the assignment to business assets was not in conflict with either the lack of collateral or the later written fixing of the loan modalities. A liability with a term of more than one year and which is due at a certain point in time must always be discounted at 5.5%. In the subsequent revision procedure (BFH judgment of July 13, 2017, VI R 62/15, BStBl II 2018, 15), the BFH came to the conclusion that interest-free (operational) liabilities from loans that a member of a business owner, self-employed or rural and Forstwirt grants to be discounted at an interest rate of 5.5% in accordance with Section 6 (1) No. 3 EStG if the loan agreement is to be recognized under tax law using the arm's length comparison. The wording of the law does not contain any restriction with regard to loans to relatives, nor does the purpose of the provision require such loans to be given special treatment. The discount amount cannot be neutralized by posting a deposit either. Although the interest-free loan is not motivated by the company, mere benefits of use cannot be deposited. There are no constitutional concerns about this.

Contractual relationships between persons by marriage are subject, as contracts with relatives, to an arm's length comparison. Interest on an initially non-interest-bearing loan that has been agreed retrospectively to the start of the contract is irrelevant for (balance sheet) tax law if this agreement is made after the balance sheet date. There are no constitutional concerns regarding the amount of the discount rate for non-interest-bearing liabilities in accordance with Section 6 (1) No. 3 Sentence 1 EStG for 2010; see BFHl of May 22, 2019, X R 19/17, BStBl. II 2019, 795.

5. Inflow and outflow principle

In the → income surplus calculation, amounts of money that have accrued to the company through taking out a loan do not represent → operating income and amounts of money that are paid to repay the loan do not constitute → operating expenses (H 4.5 (2) [loan] EStH). These principles apply not only to the income excess calculation, but to all types of income.

6. Education Loans

Repayment expenses for a training loan are not part of the deductible expenses for vocational training (→ training costs, H 10.9 [training loan / student loan] EStH); the interest, on the other hand, represents training costs (Section 10 (1) No. 7 EStG).

7. Employer loans to employees

If the ArbG grants the ArbN a non-interest-bearing or low-interest loan, the interest benefits are to be taxed as → benefits in kind. In the case of employer loans, the pecuniary benefit is based on the difference between the market interest rate and the interest rate that the ArbN pays in a specific individual case. In principle, the interest rate at the time of conclusion of the contract is decisive for the entire term of the contract, unless a variable interest rate has been agreed. With regard to the evaluation of the pecuniary benefit in employer loans, a distinction must be made between an evaluation according to Section 8 (2) EStG (e.g. ArbN of a retailer receives a low-interest employer loan) and Section 8 (3) EStG (e.g. savings bank employee receives a low-interest employer loan). According to the case law of the BFH (judgment of 4 May 2006, VI R 28/05, BStBl I 2006, 781), the employee does not receive any benefit that is subject to income tax if the employer grants him a loan at an interest rate customary in the market. The interest rate can move at the lower end of an existing range, as a borrower would always choose the cheapest alternative. The tax authorities have followed this stance and issued a detailed statement on the tax treatment of employer loans in a letter (BMF dated May 19, 2015, IV C 5 - S 2334/07/0009 BStBl I 2015, 484).

The interest advantage from the granting of an interest-free or low-interest loan can be determined in accordance with Section 8 (3) EStG if the employer predominantly provides loans of the same type and with the exception of the interest rate on the same terms (in particular the duration of the loan, the duration of the interest rate setting, the time of the repayment offsetting) awarded to external third parties and the interest advantage is not taxed at a flat rate according to § 40 EStG. The final price within the meaning of Section 8 (3) EStG for the services provided by a credit institution to its employees is generally the price that is stated for these services in the price notice of the credit institution or the account-holding branch. This price notice is also decisive for the tax assessment of services that exceed the scope of the standardized private customer business, unless special price lists are openly accessible for such services in the business premises. In order to determine the interest advantage according to Section 8 (3) EStG, it is permissible to deviate from the price shown in the price notice. Rn. 7 and 8 of the BMF letter of May 16, 2013 (BStBl I 2013, 729), according to which average price reductions granted at the end of sales negotiations are to be taken into account, also apply to the determination of the interest rate advantage according to Section 8 (3) EStG for those of services provided to its employees by a credit institution. The discount of 4% in accordance with Section 8, Paragraph 3, Clause 1 of the Income Tax Act must always be made. In the case of interest benefits to be assessed in accordance with Section 8 (2) sentence 1 EStG in connection with employer loans, the monetary benefit is based on the difference between the benchmark interest rate for comparable loans at the place of delivery or the cheapest price for a comparable loan on the market and the interest rate that is specifically Has been agreed on a case-by-case basis. Comparable in this sense is a loan that essentially corresponds to the employer loan, in particular with regard to the type of loan (e.g. housing loan, consumer loan / installment loan, overdraft loan), the term of the loan, the duration of the interest rate setting, the lending limit to be observed and the time of the repayment offsetting. The classification of the respective loan (type of credit) is based solely on the actual purpose.

Example 5:

In May 07, an ArbN receives an employer loan of € 16,000 at an effective interest rate of 2% annually, payable monthly (term of 4 years). The effective interest rate published by the Deutsche Bundesbank when the contract was signed in May 07 for consumer loans with an initial fixed interest rate of over 1 year to 5 years (survey period March 07) is 5.81%.

Solution 5:

After deducting a discount of 4%, the standard interest rate is 5.58%. The interest reduction is thus 3.58% (5.58% less 2%). This results in a monthly interest rate advantage of € 47.73 (3.58% of € 16,000 × 1/12). This advantage is subject to wage tax because the € 44 exemption limit has been exceeded.

8. Loans between shareholder and company

If a shareholder grants his GmbH a loan at an interest rate well below the market rate and thus partially paid, the debt interest paid by him for the refinancing of this loan is not included in the income from Section 20 (1) No. 7 EStG as income-related expenses deductible for which the loan was granted free of charge.

If a partner of a family GmbH grants this a partially paid loan, then the refinancing costs attributable to the free part can only be deducted in full from the income from Section 20 (1) No. 1 EStG as income-related expenses if the loan withstands an arm's length comparison and also a partner who was remote from the other shareholders would have granted the loan in part for consideration. Otherwise, the expenses can only be deducted as income-related expenses at the fraction corresponding to the shareholder's participation rate (BFH judgment of July 25, 2001, VIII R 35/99, BStBl II 2001, 698).

When a loan is granted between a shareholder and a corporation, there is a hidden profit distribution in the following cases (→ hidden profit distribution):

  • the shareholder receives an interest-free or a low-interest loan from the corporation,

  • a shareholder receives a loan from the company, although uncollectibility must be expected when the loan is given,

  • a partner gives the company a loan at an exceptionally high rate of interest.

In its judgment of March 12, 2018, 2 K 3127/15 E, the FG Münster decided under which conditions the failure of a loan granted by the shareholder to a GmbH leads to negative income from capital assets: The plaintiff was one of six shareholders in a GmbH (Participation> 1%). In 2003 the GmbH (represented by the plaintiff) concluded a loan agreement with a bank. The pledging of a fixed-term deposit account of the plaintiff and land charges of the plaintiff served as security. At the beginning of 2007 the plaintiff made a loan available to the GmbH; With the contract dated December 31, 2007, the plaintiff declared to the GmbH that the loan was subordinate to all claims of other current and future creditors of the GmbH. The loan served to replace the loan between the GmbH and the bank. In 2011 the plaintiff sold his share in the company. In the income tax return for the year in dispute, the plaintiff asserted a loss from the GmbH participation. This consisted of the loss from the sale of the share capital and the shareholder loan (each 60%). According to § 17 EStG, the FA assessed only 60% of the loss from the sale of the share capital of the plaintiff as a sale loss. The tax court stated that the final failure of a loan claim by a GmbH shareholder against the GmbH within the meaning of Section 20 (1) No. 7 EStG would lead to a loss within the meaning of Section 20 (4) EStG at the asset level. It is true that in the case of dispute there was no sale of a capital claim. According to the case law of the BFH, however, the final default of a capital claim within the meaning of of § 20 Paragraph 1 No. 7 in the property sphere to a loss within the meaning of § 20 Paragraph 4 EStG, BFH judgment of October 24, 2017, VIII R 13/15.

9. Loan default as subsequent acquisition costs

If a shareholder of a GmbH grants his GmbH a loan from his private assets and the loan repayment fails due to economic difficulties of the GmbH, the claim generally leads to subsequent acquisition costs for the shareholder for his participation in the GmbH. The same applies to the assumption of a guarantee by the shareholder in favor of "his" GmbH if the shareholder has been claimed from the guarantee and the recourse claim against the GmbH is worthless. In principle, the expenses can only be taken into account as subsequent acquisition costs if the loan or guarantee is a substitute for equity in the sense of company law. If subsequent acquisition costs are basically to be affirmed, the amount must be checked in a second step. Here, according to the case, a distinction must be made between the case groups of loan granting in a crisis, abandoned loan, crisis-determined loan and financial plan loan; in detail on this Fuhrmann, NWB 2009, 3990.

The FG Düsseldorf decided to take into account subsequent acquisition costs from equity-replacing financial aid for investments within the meaning of § 17 EStG; See FG Düsseldorf from January 28, 2020, 10 K 2166/16 E. The FG upheld the lawsuit: The loss of the loan granted in January 2012 leads to negative income for the plaintiffs from KapVerm and the failure of the loan granted in June 2013 increases the Loss of dissolution of the plaintiff. Due to the lack of assets of the GmbH, the final loss of the loan was already determined at the time of the dissolution of the company. The losses must therefore be taken into account in the 2014 disputed year.

10. Loans to finance special expenses

Debt interest that is paid in the economic context of financing a private pension that can be deducted as special expenses is not itself deductible as a permanent burden (BFH judgment of November 14, 2001, X R 120/98, BStBl II 2002, 413).

11. Loans to finance extraordinary expenses

Debt interest on a loan that is a taxpayer. has taken on to contest extraordinary burdens within the meaning of Section 33 of the Income Tax Act, are to be taken into account in accordance with this provision in a tax-reducing manner if or to the extent that the loan itself was inevitably taken out; see BFH of 6.4.1990, III R 60/88.

To take into account a loan in connection with extraordinary burdens, see the following example:

Example 6:

The Stpfl. has to bear eligible divorce costs of 10,000 € as extraordinary burdens according to § 33 EStG. He pays this amount in December 02. To partially finance this payment, he has a loan of 6,000 € must be borne by the respective 31.12. the years 03–05 amortized with € 2,000. The taxpayer pays on this loan. in the years 03 interest in the amount of 480 €, 04 interest in the amount of 320 € and 05 interest in the amount of 160 €.

Solution 6:

The amount spent in the amount of € 10,000 is eligible for allowance in fiscal year 02 in accordance with Section 33 of the Income Tax Act. It is irrelevant that a partial amount of € 6,000 was financed from loan funds and the repayment will not be made until 03–05 (H 33.1–33.4 [loan] EStH). The interest is also basically deductible in accordance with Section 33 of the Income Tax Act. They are also to be taken into account in the years of expenditure (03 with 480 €, 04 with 320 € and 05 with 160 €) (H 33.1–33.4 [Zinsen] EStH).

However, the deductible amounts only lead to a tax reduction to the extent that they exceed the reasonable burden, the amount of which is based on the total amount of income in the respective year.

12. Differentiation between loan and advance payment

According to the FG Berlin-Brandenburg (judgment of October 24, 2013, 4 K 4311/10), the client's payment to the contractor is to be recorded as an advance payment and not as a loan if it is an advance payment for a service still to be provided by the contractor should. Criteria for classification as a grant are:

  • The payment is referred to as an "advance payment" or "advance payment" but not as a loan.

  • The payment is related to the services to be provided by the contractor.

  • The advance payment is subject to VAT in the underlying contract and by the parties involved.

  • There is no agreement on the repayment modality.

When determining profits in accordance with Section 4 (3) EStG, the advance payment is to be treated as operating income and any subsequent repayment as an operating expense. A loan, on the other hand, would be neutral in terms of both receipt and repayment.

The dispute concerned prepayments by a music publisher to a musician who determined his profit in accordance with Section 4 (3) EStG. According to the author's contract, the musician should receive "a non-interest-bearing, non-refundable advance payment" that should be offset against the GEMA payments. The FG affirmed an advance and increased the profit. In the subsequent review procedure, the BFH decided (judgment of 2.8.2016, VIII R 4/14, BStBl II 2017, 310) that the non-repayable payments that a publisher makes to the author for the purpose of pre-financing expected GEMA payments and those with are to be offset against the distributions of GEMA, regardless of whether they are to be regarded as early partial fulfillment of a remuneration obligation of the publisher, with the inflow to be recorded as operating income.

13. Loan or donation

In a judgment of February 25, 2016, 4 K 1984/14, the FG Munich ruled that the interest-free granting of a loan is a generous grant for gift tax purposes if the loan is not only granted interest-free, but also no other consideration for the transfer of capital from the loan recipient is payable. If the taxpayer has received an interest-free loan from her partner to finance the renovation and conversion measures that have become necessary for her house in need of renovation, which is shared with the partner, the right of the partner to help shape the renovation and to live in the house cannot be considered as the gift taxability of Interest-free loan excluding consideration for granting the loan (in the event of a dispute: assessment of the annual interest advantage of the twelve-year interest-free loan in accordance with Section 15 (1) BewG at 5.5%).

14. Bibliography

Osterloh, loan agreements between close relatives and the requirements for their tax recognition, DStR 2014, 393; Fuhrmann, Loan default still subsequent acquisition costs, NWB 2009, 3990.

15. Related Lexicon Articles

→ Debt interest

→ Contracts between relatives

 

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