G-Lender GmbH, owned 50% of Austrian company A GmbH. The remaining 50% of the shares in A GmbH were held by non related shareholders, who at the same time acted as managing directors of A GmbH.
G-Lender GmbH granted A GmbH a total of five loans. These loans each carried an interest rate of 5.5% pa. Assets owned by A GmbH were assigned as collateral.
On 22 January 2002 and 16 June 2002, A GmbH made a partial payments on the loans to G-Lender.
By a contract dated 9 April 2003, G-Lender GmbH provided a guarantee to an independent bank for a EUR 800,000 loan to A GmbH and at the same time declared subordination of its loan claims against A GmbH.
Due to negative development in A GmbH, G-Lender GmbH on 31 December 2003, booked a partial depreciation on the loan in the amount of EUR 312.972.
In December 2004 bankruptcy proceedings had been opened on A GmbH and the guarantee of G-Lender GmbH was claimed by B Bank. G-Lender GmbH formed a provision for liabilities an in addition wrote off the residual value of the loans to A GmbH.
The German Tax Authorities disallowed the deductions from the loan guarantee.
Judgment of the Bundesfinanzhof
The case was remanded to the lower court for a final decision.
The Court reaffirmed its view from a prior ruling in I R 73/16 scope of the correction in Article 9(1) OECD also allows the profit adjustments due to non recognition of a loan claim or a write-down on the loan value. According to the Court, loans provided without collateralisation can – depending on facts and circumstances – be at arm’s length within the meaning of Section 1 (1) AStG and Article 9 OECD-MA.
The Court did not find the assessments under Section 1 AStG restricted by EU law based on the ruling in the ECJ case Hornbach Baumarkt (guarantee for a subsidiary in need of restructuring).BUNDESFINANZHOF Urteil vom 27-2-2019, I R 81-17