A shareholder loan granted to an asset-managing partnership is not recognized from a tax point of view insofar as the company's loan liability is attributable to its shareholder for tax purposes (Section 39 (2) no. 2 of the German Fiscal Code). According to a recent decision of the Supreme Tax Court, the loan agreement neither leads to deductible income-related expenses for the borrower nor to income from capital assets for the lender but is rather considered a tax-neutral contribution. This would be different only in the case of commercially active partnerships.
A shareholder loan granted to an asset-managing partnership is not recognized from a tax point of view insofar as the company's loan liability is attributable to its shareholder for tax purposes (Section 39 (2) no. 2 of the German Fiscal Code). According to a recent decision of the Supreme Tax Court, the loan agreement neither leads to deductible income-related expenses for the borrower nor to income from capital assets for the lender but is rather considered a tax-neutral contribution. This would be different only in the case of commercially active partnerships.
In a most recent decision, the Supreme Tax Court held that foreign currency losses on shareholder receivables similar to loans do not reduce the taxable income of the corporation. This was decided by the Supreme Tax Court in its interpretation of Section 8b (3) Corporation Tax Act as valid in 2014 and which deals with investments in other corporations and the non-deductibility of losses in connection with certain shareholder loans.
The Supreme Tax Court decided that interest from loans made by a taxpayer to a foreign corporation in which he indirectly holds an interest of at least 10% is subject to the regular progressive scale rate income tax rather than to the (lower) flat rate of 25%. This applies for all tax years prior to the introduction of the Finance Bill 2020.
The Supreme Tax Court has held that a foreign limited partner must accept attribution of the shares in a British distributor company held by the partners to the partnership. In consequence, the interest on a shareholder loan falls to the partnership, where it is requalified as trading income. The interest clause in the double tax treaty with the partner’s home country is inapplicable.
The Supreme Tax Court has held that the write-off of a shareholder loan held as a business asset is fully deductible by the income taxpaying holder even if the loan is to be seen as a substitute for share capital
