The BFH has published a decision on the obligation to discount non-interest-bearing liabilities with a maturity of more than one year from the balance sheet date under German tax law. Whether a loan with an indefinite maturity was subject to these rules has been controversial. Absent more specific terms in a loan agreement, a loan with an indefinite term may be terminated under German civil law by the lender or debtor giving three months notice – this argument was advanced by the taxpayer to support his position that the loan was not to be discounted.
The BFH rejected this argument, concluding that the actual duration of a loan must be determined from an economic perspective. Thus, the maturity the debtor actually expects is decisive for the question whether the loan has to be discounted for tax purposes. Moreover, the BFH confirmed that the obligation to discount non-interest-bearing liabilities also applies to shareholder loans even if they are considered “equity replacing” for corporate law purposes.
Taxpayers should review their loan agreements to ensure that any non-interest-bearing loans have been discounted as required by law. In cases where such loans have been granted for an indefinite period of time, taxpayers should carefully review the actual duration of the loan because discounting based on the actual duration may lead to lower discounting income than discounting the loans for an indefinite period as required by law.
