Tax & Legal

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.

The Supreme Tax Court has rejected a tax office income adjustment cancelling a write-down of an unsecured loan to a foreign subsidiary as the lack of security was, in the view of the tax office, not at arm’s length.

The finance ministry has brought its position on value impairment write-downs into line with the relevant Supreme Tax Court cases.

The Supreme Tax Court has held that the Corporation Tax Act prohibition on impairment write-downs on foreign investments in 2001 must be disapplied if the investment is protected by the EU freedoms of establishment or capital movement, or if it leads to retrospective taxation.

The finance ministry has called upon tax offices to follow a Supreme Tax Court judgment prohibiting a write down of fixed-interest securities to their lower current market rate where there is no risk of ultimate loss.

The Supreme Tax Court has held that units held in unquoted investment funds holding shares should be written down to their redemption price at year-end or, if not freely disposable, to their issue price.

The supreme Tax Court has held that a bank cannot write down its fixed-interest securities held as current assets below their nominal (redemption) value, not withstanding a lower market value at balance sheet date.

The Supreme Tax Court has held that even if a company is entitled to offset the loss of its foreign subsidiary at all, it cannot do so before the loss becomes irrecoverable.