Interest – financing – shareholder loan – capital income

In principle, expenses can be

in connection with private investment income are not deductible as income-related expenses. These are compensated with the saver’s lump sum of 801 euros (spouse 1,602 euros). An exception applies, among other things, to loans to the “own” corporation. If the shareholding is at least 10%, the interest paid by the corporation is taxable for the shareholder at the personal tax rate on the one hand (Section 32d (2) no. 1 letter b EStG) and is not subject to the 25% final withholding tax rate; on the other hand, expenses in this connection may be deducted as income-related expenses in the actual amount. This applies, for example, to interest for refinancing a shareholder loan. In this context, refinancing interest is deductible even if the company cannot (or can no longer) pay the interest to the shareholder due to an emergency situation. In this respect, the shareholder then incurs a tax loss on income from capital assets.

If the shareholder waives

however, on the repayment of the loan in order to strengthen the Company’s equity and earnings position, no capital gains accrue in this respect. This also eliminates the previous deduction of interest for the refinancing loan. This also applies if the loan waiver is combined with a debtor warrant. As the waiver was made in order to strengthen the company and improve profit expectations, there is now a connection of the refinancing loan directly with the investment, so that the interest is to be regarded as expenses in connection with (future) profit distributions.

However, since investment income is generally subject to the final withholding tax, advertising costs (interest) can only be taken into account if the so-called partial income procedure is applied for; in this case, a deduction of at least 60% of the refinancing interest is possible. A corresponding application must already be made when submitting the tax return (Section 32d (2) no. 3 EStG).

(For further comments, information and examples, please refer to our Information Letter 01/2019).

Neumann & Walczak – tax consulting company GmbH – Robert-Bosch-Strasse 1 – 59439 Holzwickede

Neumann & Walczak Tax Consultants – Partnership –
Robert-Bosch-Strasse 1 – 59439 Holzwickede

Website: www.neumann-walczak.de – E-mail: info@neumann-walczak.de

Phone: (0049) 02301 – 91 291 0 – Fax: (0049) 02301 – 91 291 21