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Germany: Unsecured intragroup loans, losses not deductible

Germany: Unsecured intragroup loans

The federal tax court (BFH) has amended its position from prior decisions concerning the treatment of adjustments to income pursuant to Section 1 (1) of the German External Tax Relations Act [AStG] for the profit-reducing derecognition of an unsecured intragroup loan and now concludes such loss is not tax deductible.


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According to the BFH:

  • Article 9(1) of the OECD Model Tax Convention (MTC) has no precluding effect with regard to Section 1 (1) AStG.
  • Article 9(1) OECD MTC does not limit the scope of Section 1 (1) AStG to price adjustments, but also permits the adjustment of income pursuant to Section 1 (1) AStG for the profit-reducing derecognition of a loan receivable or write-down to fair value.
  • A precluding effect of Article 9(1) OECD MTC with regard to Section 1 (1) AStG can be deduced neither from the wording nor the intent and purpose of Article 9(1) OECD MTC.
  • An adjustment of income pursuant to Section 1 (1) AStG is also not in contravention of EU law.
  • Accordingly, any loss arising from the profit-reducing derecognition of a loan receivable or write-down to fair value is therefore not tax deductible.


KPMG observation

This change in position from prior BFH decisions may have considerable implications for the financing of foreign subsidiaries by domestic parent companies.

Read a June 2019 report prepared by the KPMG member firm in Germany

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