How are statute-barred loans and gifts treated in tax law and insolvency? In the guest article, Dr. Fiala and Peter Schramm explain how fictitious payments lead to the tax burden.
The Federal Fiscal Court decided in a ruling of 9 February 2015 (file no. I B 32/14) that the statute of limitations for claims with subsequent derecognition by a corporation is to be taxed as a hidden profit distribution (vGA). In the opinion of the court, an ordinary manager would have ensured that the claim against a related party had not become statute-barred.
Close relatives may not only be relatives, but also, for example, long-standing customers, friends and acquaintances. In the case of the vGA, it is (fictitiously) assumed that the claim was distributed as profit, in order to tax the cash flow that actually did not occur. In the opinion of the Federal Court of Justice (BGH), this is actually only an exchange of assets in the balance sheet, because the managing director is liable to the company for missing the deadline within the scope of the so-called manager liability for corresponding recourse payment.
Hidden profit distribution or hidden contribution
The concealed inlay works in a similar way to the vGA – only in reverse. This is the case, for example, if the managing director waives his pension commitment because the company is to be sold or a restructuring is pending. The company then releases the pension provision and more or less compensates this by a hidden contribution in the amount of the replacement costs (going-concern value).
For the shareholder, this leads to a (fictitious) inflow such as wages in the amount of the going-concern value, i.e. again to tax payment without cash flow, because there is no severance payment, §§ 19, 34 EStG. In the amount of the going-concern value, the shareholder incurs subsequent acquisition costs, 60% of which can later be deducted for tax purposes – e.g. in the event of liquidation to reduce losses – § 3 EStG. Such tax consequences are usually based on the consultant’s ignorance, for example when a pension commitment is transferred from one company to another in a technically incorrect manner.
allow debts to lapse
After his doctorate in criminal tax law, a public prosecutor took a bribe by taking a loan. For the borrower this appears to be tax-free – in reality the loan had been a sham transaction, with full tax liability on cash flow, § 11 EStG. It is common practice to simply allow such “private” loans to lapse, if necessary, as well as, for example, (legally or contractually reserved) claims for repayment of previous gifts.
Loans in connection with a purchase contract are regularly subject to a limitation period of three years at the end of the year – however, from the time of default of repayment, a suspension of up to 10 years occurs, § 497 para. 3 P. 3 BGB. Only in the case of loans for maintenance or education, which are waived without further inheritance, is there a material tax exemption, § 13 ErbStG.
If genuine gifts are reported to the tax office, the tax case can be kept open if a condition or reservation has been agreed or if a recovery remains possible. If the contractual regulation is initially incomplete, gift tax can be incurred again – i.e. when the gift is retransferred or reclaimed.
A tax consultant from Baden-Württemberg advised his client to make a pension commitment with a pledge of a claim from shareholder loans as security. Later, the auditor appeared when an insolvency administrator had already taken over the regiment and believed, wrongly in law, that without a payment transaction for the pension due since the opening of the insolvency proceedings and due to lack of assets, no taxes were due in this regard.
Contracts that are free of charge may also give rise to tax liability
In particular, the order, the donation and the loan are free of charge. Thus, instead of a right of residence in notarial form, a loan can also be agreed without formality (BGHZ 82, 354). As far as an enrichment exceeds the newly arising tax-free amount of at least 20,000 € every 10 years, a gift tax liability arises. With Leibgeding, yard delivery and old part this is as anticipated succession the case concurrently, whereby any consideration to the partial value can be deducted tax-reducing.
If, in a contract typically concluded for a fee, the consideration is waived, e.g. if an interest-free loan is granted, this is a “generous donation” (BFH, judgement of 27.11.2013, ref. II R 25/12) in accordance with § 7 I 1 ErbStG, i.e. a donation in the amount of the usual market interest rate for loans granted – § 15 BewG is based on 5.5%.
On the other hand, maintenance paid in an appropriate amount would often be tax-free for an illegitimate or divorced partner, for example, or tax-deductible for the maintenance debtor, and thus also taxable for the recipient.
Low-cost contracts reduce the deduction of advertising expenses
If less than 2/3 of the market rent is rented to a relative (including the own company), the advertising expenses are reduced proportionally. In the case of furnishings, the usual price is determined by spreading the acquisition costs over approximately 10 years, plus 4% equity interest p.a. (FG Lower Saxony, judgement of 07.12.2010, Az. 3 K 251/08).
Double gift or inheritance tax?
Occasionally, assets were transferred gratuitously decades before death, and taxed. If the presentee can no longer present a tax assessment with proof of payment, this could lead to (de facto) double taxation. The tax office has four years for the tax assessment, calculated from the end of the year in which the event occurs until the statute of limitations comes into effect. The event would be the knowledge of the tax office of a gift, the death of the donor, as well as the opening of the will at the probate court, § 170 V German Tax Code (AO). In the case of a gift, the tax claim arises at the time of the gift, § 9 I 2 ErbStG, so that 0.5% p.m. can also be added as interest. In the case of evasion, however, the period for contesting the claim is 10 years.
Under criminal law, the statute of limitations begins as soon as the transfer of assets has not been reported to the responsible tax office for four months, § 30 I ErbStG (BGH, dated 25.07.2011, 1 StR 631/10). The criminal statute of limitations is five years, and only then 10 years if the value is over 100,000 € or a tax reduction of over 50,000 € (BGH, from 02.12.2008, 1 StR 416/08). Also the concealment of a gift, for which tax could still be assessed, leads to criminal liability (BGH, dated 10.02.2015, 1 StR 405/14).
Rescission by challenge?
If it is later contested by a creditor or the insolvency administrator, the original gift remains in existence and must be reversed, for example by reassignment, or possibly restitution (BGH, judgment of 21.09.2006, Az. IX ZR 235/04). In this context, the failure to interrupt the statute of limitations in good time in the case of a claim is also contestable as an omission, section 129 InsO, section 1 AnfG. The waiver of a plea or the omission of a challenge of an error is equivalent. The four-year period for contesting a gift could be offset by backdating, unless an expert determines the age of a deed.
On the other hand, the non-acceptance of a gift, the renunciation of a legacy or the bequest of an inheritance, as well as the non-enforcement of claims to a compulsory portion and gain, would not be contestable, since these are highly personal rights that no one else can assert.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.procontra-online.de (Published on 06.10.2016)
www.pt-magazin.de (published on 07.12.2016 under the heading: Statute of limitations for loans and gifts in tax law and insolvency)
www.ap-verlag.de (published on 23.10.2016 under the heading: Statute of limitations for loans and gifts in tax law and insolvency)
www.experten.de (published on 07.11.2016 under the heading: Statute of limitations for loans and gifts in tax law and insolvency))
published in Bauernzeitung, 42nd edition, 21.10.2016 under the heading Statute of limitations on loans and gifts)
www.network-karriere.com (published in issue 11.2016, page 30 under the heading: How only fictitious payments lead to tax liability)
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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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