In view of the financial market crisis, it is an extremely understandable concern that shareholders of a corporation or partnership keep their company liquid. After all, the economic existence also depends on it. The authors explain the special opportunity of a foundation per “sale of receivables of a different kind”. Red.
If the company needs fresh money, for example to open up new business areas or to carry out projects, the first port of call is its principal bank. However, it is often the case that the necessary funds have to be made available to the company out of its own pocket in the form of a loan, as banks refuse to provide financing despite the provision of suitable private collateral, particularly in the current financial market situation.
Silvering of receivables from loans granted
That means, in the normal case:
One’s own reserves, which were originally earmarked for other purposes, are used because, after all, one’s own life’s work should not be endangered or one does not want to miss out on new business opportunities. A mere loan of funds to one’s own company is regularly not immediately deductible for tax purposes – it is usually taxed money. A later deduction is only possible within the narrow limits
of subsequent acquisition costs possible, such as through crisis designation or as a financial plan loan. This is rarely the case in practice, especially if market conditions and loan collateral were not agreed prior to a crisis. The funds made available to one’s own company are lacking in the private sector. It is often not possible to withdraw the loans granted from the company in the short term, especially if long-term projects or investments are financed with them. If private liquidity requirements now arise, the question arises as to how and whether receivables from loans granted to the company can be “sold off”.
Often no way is to refinance and pay off the loans through a house bank. It is often prohibited by the economic environment. Some credit institutions have resold or cancelled loan claims against customers: a collection company has forced many a company into insolvency as a result. Often, however, the original loan application may already have been rejected, so that refinancing via a bank is out of the question.
Way out – setting up a foundation
In this situation, it may be possible to obtain liquidity from the state in the form of income tax refunds by donating and donating such a loan claim of the shareholder against his company to a charitable foundation. A particular advantage is that donations to charitable foundations do not have to be made in cash. Other assets, for example the receivables referred to here, may also be assigned.
. For tax purposes, this loan receivable is valued at its so-called fair market value.
. If the receivable is recoverable, there is nothing to prevent the donor from deducting the corresponding amount as a special expense.
Protection via additional private assets
If the creditworthiness of the company receiving the loan is not beyond doubt sufficient to secure this value, the shareholder-managing director has the option of providing additional private collateral. It should also be noted that interest will be charged on the assigned loan receivable in accordance with the third party standard. However, it does not have to overstretch this framework either. Interest should also be paid on an ongoing basis. Charitable foundations must fulfill their statutory purposes in a timely manner
. This regularly requires corresponding income, in this case in the form of interest payments.
. The procedure described allows at least part of the loan proceeds to be returned to the private sector without affecting business concerns and liquidity needs. The decisive factor here from an economic point of view is that the assets from the tax reflux can also be invested immediately.
create planning security
It is also advantageous that the company continues to know its creditor, the foundation. Unlike with banks, the loan receivables are not likely to be sold on, for example to the famous locusts or special purpose vehicles. The term of the loan can be designed for the long term in accordance with operational requirements, which gives the company planning security. Compliance with the golden refinancing rule can be ensured without any follow-up financing risk: after all, there is neither the risk of arbitrary loan termination nor the danger of surprise follow-up collateral demands on the part of a bank. the value of the company can be positively influenced by long-term loans in the company. This increase in value then accrues to the shareholder of the company. Finally, setting up your own charitable foundation offers the opportunity to use it to promote your own company’s image and thus ultimately increase its value, while at the same time doing good.
by Dr. Johannes Fiala and Dr. Uwe Dörnbrack
From www.kreditwesen.de (published in (Assets & Taxes 1/2009, pages 22-23)
1) Cf. BFH ruling of 2 April 2008, ref. no.: IX R 76/06.
2) § 10 b para. 1 a EStG.
3) Ludwig Schmidt, Kommentar EStG, Beck Verlag, 27th edition 2008, § 10 b RdNr. 2, § 5 RdNo. 97.
4) Ludwig Schmidt, Kommentar EStG, Beck Verlag, 27th edition 2008, § 10 b RdNr. 2, § 6 RdNo. 215.
5) § 55 par.1 No. 5 AO.
6) Panse/Bär in Richter/Wachter Handbuch des internationalen Stiftungsrechtes Zerb Verlag, 2007, page 122.
7) Section 10 b (1a) sentence 1,2 EStG.
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Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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