Germany: Refinancing costs as business expenses | KPMG Global
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Germany: Deduction of refinancing costs as business expenses

Germany: Refinancing costs as business expenses

The federal tax court (BFH) addressed a situation in which a Dutch corporation held an ownership interest in a German partnership from which the Dutch entity received profit shares. The profit shares were subject to limited tax liability in Germany.


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In 2002, the corporation made a contribution to the German partnership, which was financed through a loan obtained in the Netherlands. The German partnership in turn was a controlling entity in a tax group with a Germany corporation as controlled company.

Subsequently to making the contribution, the Dutch corporation contributed its interests in the plaintiff to a Dutch partnership in return for ownership interests. As a result, the Dutch corporation held direct ownership interests in the Dutch partnership while its interests in the plaintiff became an indirect interest.

The BFH held that concerning an indirect interest, “type II special partner business property” can be assumed to exist and hence also to continue to exist after the contribution transaction. The loan interest had a tax-reducing effect on determining the Dutch corporation’s profit share from the ownership interest in the German partnership. According to the BFH, the controlling entity’s consolidated income was relevant. Despite the special business expenses, there was positive income at the level of the German partnership. There was no need for the BFH to decide whether the provision referred to is applicable at all in cases where partnerships are controlling entities.


Read an April 2017 report [PDF 322 KB] prepared by the KPMG member firm in Germany


Other topics discussed in this KPMG report concern:

  • The BFH referred a case to the Court of Justice of the European Union (CJEU) concerning whether the so-called controlled foreign corporation (CFC) rules applicable to passive income with investment character in cases involving non-EU/EEA countries are compatible with the freedom of capital.
  • New documentation requirements in the field of transfer pricing were introduced with the law on the implementation of the amendments to the EU administrative assistance directive and further measures against base erosion and profit shifting.

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