In the case of a current account, there is a clearing agreement between two business partners. Accordingly, mutual claims and liabilities are bundled in a current billing account and settled regularly. This serves to process the mutual monetary claims in a simplified manner. With a current account there are some tax peculiarities. We clarify how the current account is treated for tax purposes.

1.Legal basis for the current account

1.1. Definition of the current account

According to the legal definition in § 355 (1) HGB, there is a current account if someone is in a business relationship with a merchant in such a way that the mutual claims and benefits arising from the connection together with interest are invoiced and compensated in regular periods by offsetting and determining the surplus resulting for one or the other part. The individual claims lose their legal independence. The term current account comes from the Latin conto corrente = current invoice. It serves to facilitate the settlement of mutual monetary claims.

1.2 Unemployment of the suspended claims

The claims placed in the current account lose their legal independence and become mere account items. Therefore, they cannot be asserted independently, nor can they be fulfilled in isolation. In addition, they are not assignable, not assignable (§ 1274 paragraph 2 BGB) or attachable by way of foreclosure (§ 851 paragraph 1 ZPO). This applies from the time of creation of the current account. Therefore, an advance assignment of the individual claims subject to current accounts to the current account agreement also fails.

Also the regulation of § 354a HGB, which declares prohibitions of assignment among merchants to be ineffective, does not intervene with a current account. § 354a HGB applies only if the assignment of a claim on the basis of an agreement according to § 399 BGB is excluded. However, the assignment of claims is not excluded with a current account because of an agreement. Rather, the claims are not assignable because they have lost their legal independence as a result of the current account.

1.3 Set-off of claims

Several points in time are conceivable for offsetting claims. In § 355 (1) HGB, the law assumes an offset in regular periods of time (so-called current account period). However, it is also possible to arrange a staggered account current. In the case of a staggered current account, the offsetting takes place immediately when a new claim or performance is entered into the current account. Then, however, the question arises as to how the settlement actually takes place and whether it takes place automatically when the claims have been received in the current account. According to the case law, a current account consists in principle only of the claim from the balance recognition. The claim under the balance sheet therefore constitutes a new obligation which replaces the claims entered in the current account. Only after the balance recognition the claims are to be offset.

Tax problems of the current account

2.1. Time recording

The problem with a current account is when the income or expenses are allocated. According to § 39 AO (economic attribution), income or expenses must be attributed to the person who has economic power. In the case of a current account, however, claims and liabilities can be postponed to the next settlement period.

In the profit calculation, transactions are generally only recorded with access and outflow (§ 11 EStG). Economic burdens therefore only become effective for tax purposes as operating expenses upon actual outflow. Conversely, operating income is taxed only at the time of inflow. The acceptance of inflows and outflows shall be determined by the time at which the taxable person acquires or loses economic control of the asset as safely as possible. In order to allocate income on an accrual basis, regular and timely offsets are therefore required.

The booking of interest on the current account leads to a service within the meaning of § 11 (2) EStG. Current account interest is considered to have been paid at the time of booking as long as the bank does not refuse further crediting, even if the booked interest can actually no longer be paid.

2.2. Differentiation between operational and private events

A current account may be mixed. A mixed current account exists if the parties to the contract process privately but also operationally initiated payment transactions. The liabilities are then divided into an operational and a private liability. Only the operationally initiated part can be claimed by the debtor as operating expenditure.

2.3 Losses

Losses from bad debts in the current account can be a tax problem. Receivables from current accounts should be regularly checked for their value. Bad debt must be properly written off. Evidence of irrecoverability can, for example, constitute reminders, negotiations or insolvency proceedings concerning the debtor’s assets. Only those losses which are operationally initiated may be claimed again. Proper accounting and justification are essential here.

2.4.

Current account balances are often interest-bearing. The creditor of the interest thus obtains taxable income. These can be either income from capital or operating income. The debtor may declare the interest payments as operating expenses provided that the interest payments are operationally initiated. The Commission considers that the arm's-length principle does not apply to the taxpayer. This should be particularly noted between related parties and affiliated companies. The remuneration of current account balances should therefore be in line with the arm's length principle. A written agreement on interest rates and their adjustment to market values reduces conflicts with the financial administration.

In the case of a current account relationship between a corporation and a shareholder, there may be a hidden distribution of profits if the interest on the current account loan is below the market interest rate. According to § 8(3) sentence 2 KStG, the hidden distribution of profits is not tax deductible.

2.5. VAT problems

In the case of a current account, claims and liabilities are offset on an ongoing basis. However, the origin of the sales tax depends on when the service was provided (§ 13 (1) no. 1 UStG). Therefore, a late settlement in the current account must not delay the timely payment of the sales tax. Thus, entrepreneurs must report the turnover independently of the current account settlement correctly at the time of service provision. A clear separation of accounting statements and tax reporting is necessary in order to ensure the timely payment of VAT.

3rd Conclusion: This is especially important for the current account

In summary, in order to tax a payment in the current account correctly, the following aspects must be considered: The accounting for the current account must be done carefully. In particular, it is necessary to examine carefully which expenditure is operationally motivated. The parties must make clear contractual arrangements. Agreements on interest, settlement periods and conditions shall be made in writing. The transactions shall be regularly reviewed and reported to the tax office.