In a recent judgment the Supreme Tax Court held that the granting of a loan at an interest rate which is not customary in the market is subject to gift tax as gratuitous contribution. When calculating the interest advantage the standard (typically used) interest rate of 5.5% as mentioned in Section 15 (1) of the Valuation Act cannot be applied if a lower market value for comparable loans has been established.
One of the issues of dispute before the tax courts was if the waiver of a claim by a shareholder of a corporation in return for a debtor warrant should be taken into account at the time of the waiver or later if it is certain that the condition subsequent will no longer occur. According to the decision of the Supreme Tax Court, the ensuing loss in the case from the waiver is to be considered for tax purposes already at the time of the waiver. This results in negative income from capital investments in the amount of the non-recoverable receivable. The Supreme Tax Court further revealed on how it sees qualified subordinated debt and interest for refinancing of the loan to be treated in the hands of a shareholding managing director.
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 request for a preliminary ruling from the District Court of Ravensburg (Landgericht Ravensburg) the European Court of Justice was asked for an interpretation of Directive 2014/17/EU on the creditor’s right to receive compensation for premature repayment of a loan. The ECJ held that it must be ensured that the calculation by the creditor of its loss of profit from the premature termination, considering the flat rate return on the sum repaid early is fair and objective, and that it does not exceed the creditor’s financial loss.
In its decision of today, the General Court held that the VAT exemption for “the management of credit by the person granting it” under Article 135(1)(b) of the VAT Directive does not apply in a case where the credit is sold to a third company and whilst the management of that credit is retained by the seller.
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.
If a majority shareholder and the company decide that the interest maturity date from a loan granted to the company should be extended, the interest does not immediately accrue to the shareholder if the amendment was concluded prior to the original interest due date. According to the Supreme Tax Court, this applies irrespective of whether the terms and circumstances of the prolongation are customary and in line with arm's length principles.
According to a ruling of the Supreme Tax Court, the compensation for use received in the context of the reversal of a consumer loan agreement after revocation is not subject to income tax.
In a most recent judgment, the European Court of Justice decided that Article 10a of the Dutch Corporate Income Tax Act providing for an interest deduction limitation rule in wholly artificial arrangements is compatible with EU law. Although this article introduces a difference in treatment between a domestic and a cross-border situation, such a difference is justified based on the need to combat tax fraud and tax evasion.
According to a decision of the Supreme Tax Court, the mere fact that a foundation returns the amount it previously received from the donor to the latter within a short period of time as an interest-bearing loan and uses the interest income earned to promote its tax-privileged statutory purposes is not in itself a reason to deny the tax-deductibility of the contribution as donation.
In a recent judgement, the Supreme Tax Court (BFH) ruled that partial loan forgiveness for professional development training constitutes taxable income from employment under Section 19 (1) Sentence 1 No. 1 of the Income Tax Act.
In a preliminary request from Poland the European Court of Justice decided that the consumer can recover part of the commission linked to the granting of credit if he or she has not been informed that this commission is not dependent of the duration of the contract. The same applies if the consumer has paid that commission in a single instalment when concluding the mortgage agreement.
In a most recently published decision, the Supreme Tax Court commented on Section 8b (3) Corporation Tax Act which deals with a prohibition on deductions (such as the write-off in case of impairment of loans) in case of tax-exempt dividend income received by a corporation from shares held in another company. In addition, the court held that the disallowance is not applicable where a natural person is a related party to the company.
The fact that a commercial limited partnership (KG) receives income ranking as business income because of the so called „tainting effect“ does not preclude the partial write-off of a worthless loan owed to its partner if the principles of corresponding accounting between partnership and the partners no longer apply because of the discontinuation (cessation) of the business of the KG. Unlike the tax court of first instance, the Supreme Tax Court allowed the loss from the partial write-down to be recognized already at the time of the cessation of the business activities.
In a Bulgarian case the European Court of Justice (ECJ) held that EU law does not preclude national legislation imposing withholding tax on notional market-based interest (mandated under local tax anti-avoidance rules). Such withholding tax cannot be exempt under the regimes of the IRD (EU Interest - Royalty Directive 2003/49/EC) and the PSD (EU Parent-Subsidiary Directive 2011/96/EU) as there have been no actual payments of interest.
In a most recent judgment, the Supreme Tax Court decided on the transfer pricing method to determine an arm's length interest on intercompany loans. In its decision the highest tax court also provides some guidelines on the parameters to be observed from a purely tax point of view. Also, the court takes time to compare the adequacy of the various standard methods under review.
Following a referral from the Federal Constitutional Court, the Supreme Tax Court has again had to rule on the income adjustment pursuant to Section 1 (1) Foreign Taxes Act vis-à-vis the write-down of an unsecured loan receivable issued within a group
In a most recent judgment, the Supreme Tax Court clarified that compensation (settlement) payments in connection with an interest rate swap may be deducted as business expenses if they are used to hedge an operational interest rate risk. However, this requires that the business loan and the interest swap transaction are exactly or at least approximately matched in respect of their content (portfolio, volume, term and amount).
In a recently published judgment, the Supreme Tax Court decided that the disallowance to deduct special business expenses under Section 4i Sentence 1 of the German Income Tax Act for partnerships with foreign partners may also apply to cases of Dutch group taxation. Furthermore, it is not only important whether a formal deduction for business expenses is made abroad, but also whether the expenses economically reduce the taxable income abroad.
