Loss from equity replacement loans and guarantees

Loss from equity replacement loans and guarantees

In its decision of June 9, 1997 (GrS 1/94, see GrStB 12/97, 28), the Federal Finance Court has commented on the question of how to waive a claim that a shareholder or a person close to him in favor of a A limited liability company. In the meantime, the Fourth Federal Council has taken four decisions on a similar problem at shareholder level, for the tax treatment of losses on equity replacement loans and guarantees. See http://www.genahres.com/2019/07/24/payday-loans-direct-lenders-i-need-a-payday-loan-direct-lender-no-third-party/ for details

Equity replacement loans exist when a shareholder grants loans to a company out of indebtedness, bankruptcy or other causes that a third party could not have granted in view of the crisis situation. However, if the crisis occurs only after the loan has been granted, the loan will replace the equity from the beginning of the crisis situation if the shareholder “leaves” it in the knowledge of the creditworthiness that has occurred.

With the premature termination of the loan agreement by an external third party in this constellation for important reasons, the legal ground is substantiated by the fact that the loan has remained unpaid. Previously, the Fourth Federal Council had taken the view that the abolition of shareholder loans in the sense of Section 32a (1) GmbHG (eg in the case of bankruptcy of the GmbH) led to subsequent acquisition costs for the investment company in the amount of the nominal value of the rotted out loan claim ( BFH 7.7.92 SStBl II 93, 333).

He always considered the loss of the equity-raising loan as caused by the business relationship (BFH 27.10.92 LStBl II 93, 340). The BMF (BStBl I 94, 257) had argued against the nominal valuation of the BFH, that the corporate crisis has reduced the equity substitute loan, so that the subsequent purchase costs are not to the face value, but to the reduced market value (possibly EUR 0) ,

With his decisions of April 24, July 29 and November 4, 1997 makes the AIII. Federal Council now clearly that the valuation always depends on the current loan value at the time of acquisition of the equity substitute character. If the shareholder of the GmbH grants a loan as an equity substitute during the crisis situation and if this loan subsequently leads, for example, to a definitive bankruptcy, the subsequent purchase costs must be measured at the nominal value of the loan.

The reason for this assessment is the recognition that a shareholder loan granted in the crisis situation has largely been considered private capital since its award. Lending is therefore not an economic provision of credit by way of credit, but is at least close to, if not equal to, final custody. If the shareholder grants a loan to his economically sounder company and later this becomes an equity substitute by leaving the company in a crisis situation, the determination of the later purchase costs is based not on the nominal value but on the market value of the loan at the time of the exit.

As a rule, this will be (clearly) lower than the nominal value of the bond volume. The difference between the market value and the nominal value of the loan is not included for tax purposes. In exceptional cases, however, a par value assessment shall be carried out in the case referred to in subparagraph (b) above, if the loan has been used to finance the crisis situation in such a way that the shareholder so insists on granting the firm credit or creditors of the society has pointed out that he will leave the loan even in a crisis situation.

This is the case, for example, where the shareholder issues a subordination order, the loan is necessary to fulfill the purpose of the business, third parties are not willing to lend, the loan exceeds the share capital many times over and / or the loan is not granted on normal market terms (so-called financial plan credits). The entitlement of the shareholder to equity equivalent guarantees or similar securities within the meaning of 32a GG by the creditors of the Company may also result in subsequent costs of the investment if the guaranteeing shareholder is ultimately unable to complete the investment due to lack of liquidity or insolvency To collect company (see § 774 BGB).

Guarantees can have the same status as equity replacement loans from the beginning (analogous to 1a and 1c). However, they can only replace equity after the authorization (analogous to 1b). This is due to the fact that the shareholder retires in a crisis, although he could demand the exemption from the guarantee from the company (§ 775 No. 1 BGB).

Guarantee loans

Guarantee loans

If such an exemption right does not exist, the guarantee nevertheless becomes an equity substitute if the shareholder continues the GmbH business, although he could have terminated it because of his dominating sphere of influence (eg in the case of a one-man limited liability company). If the guarantee gives rise to damage to the shareholder and the shareholder can under no circumstances reclaim the company due to a lack of liquidity or insolvency, the following acquisition costs will apply.

The question arises as to how these subsequent acquisition costs are to be accounted for, especially at the time when the calculation is to take place. Three variants can be considered: the one with which the shareholder was effectively used by the creditor of the company (nominal value). Amount of the shareholder’s mortgage recovery claim against the shareholder at the time of the warranty when the guarantee replaced equity (market value).

Amount of the effective right of recourse of the Shareholder against the Company at the relevant time of claim by the creditor of the Company (market value, normally zero). The decision of 24 April 1997 (VIII R 23/93) makes no clear statement on this point, but explicitly refers to the handling of equity capital loans under 2b. the grounds of the judgment that guarantees and loans should consequently be treated equally.

It takes into account that the assumption of a guarantee by a liquid shareholder corresponds economically to the assumption of a direct loan in favor of the company. Therefore, the value actually used is to be judged when the guarantee has replaced equity from the beginning. In the case of a guarantee, which has become a substitute for equity due to departure from the company, a claim of the creditor against the shareholder for the outbreak of the crisis or creditworthiness must be falsified and his hypothetical claim for recourse against the company must be examined.

In no case, however, should the later actual time of use be considered. The reason for the consequential damages under corporate law is justified at the time when the guarantee becomes an equity substitute.