The regulation of the operating interest deduction is intended to restrict the private use of the loans issued for a company. This is particularly relevant for individual companies and partnerships. By § 4 Abs. 4a EStG interest on these loans is partly added back to the profit. However, the addition can be attenuated or eliminated. By allocating the loans to the acquired fixed assets, this addition is reduced. Then we will explain the procedure for § 4 Abs. 4a EStG.

Partnerships: Only 30% Tax instead of 50% Tax

1st Operating Deduction of Debt Interest according to § 4 para. 4a EStG

1.1. Purpose of deduction of interest

In principle, debt interest reduces the tax profit of a company. This is done on the basis of the classification of interest as operating expense. Thus, expenses that serve the activity of the company reduce the profit. Thus, borrowing is a common means of reducing the tax burden.

1.2. Reasons for limiting the interest deduction

The separation of private and operational expenses is not always clear. This makes it difficult to legitimately determine the tax burden of a company. In addition, the deduction of debt interest thus constitutes an incentive for design abuses. This is limited by § 4 Abs. 4a EStG, by checking the interest expenses for the legal allocation to the company or private sphere.

In addition, a takeover by the shareholder must be limited. Accordingly, interest is added to the profit if the shareholder makes excessive withdrawals. These must not exceed its deposits in addition to the profit generated by it. In such a case, the shareholder relies on the loan provided for operational purposes. This process is not tolerated by the legislator. In order to limit this abuse, an additional amount is calculated. In the end, this increases the profit of the company. Thus, the tax advantage is limited by deducting the debt interest.

Important Definitions of Deduction of Debt Interest

2.1. Profit

The profit is the operating assets at the end of the marketing year minus the operating assets at the beginning of the marketing year. In addition, deposits made must be deducted and withdrawals added. In addition, the profit from the sale or abandonment of a business must be included. The BFH also found in the judgment of 14.03.2018 that a loss falls under the income tax term profit. This provides clarity, especially since the financial administration had previously decided differently.

2.2 Deposit

Deposits are defined as different types such as cash or in-kind contributions and transfers of use based on a shareholding relationship. In addition, the transfer of assets can take place from private assets or from other business assets. On the other hand, there is no deposit if the company receives cash at short notice to circumvent the limited deduction of interest on debt. Rather, there is a misuse of design.

2.3.

Assets represent an extraction, provided they are transferred to the private sector or to a non-business sector. For example, repayments of a loan or remuneration to a fellow entrepreneur are withdrawals from his private account. However, an increase in the capital account would not be. In addition, a co-entrepreneur extracts an asset from another co-entrepreneur when it is deposited free of charge into the special business assets. In the case of an operating task, the transfer of assets to private assets also constitutes a withdrawal.

First of all, the legal use of the borrowed loan must be checked. The actual purpose must be assigned to the sphere of activity of the company. Otherwise, there is financing for other purposes. In this case, a deduction of the debt interest is excluded from the outset. However, if the operational purpose is fulfilled, the examination of transfers takes place.

3.2 Takeover

If the withdrawals exceed the deposits and the profit, there is a takeover. Accordingly, the deduction of the operating debt interest is limited. Relevant is the tax profit plus the off-balance-sheet additions according to § 8 GewStG.

SEGMENT018 Example 1 for calculating the takeover:

A establishes his company with a capital injection of €20,000 in the year 01. In addition, he takes out a loan of € 100,000. On this, debt interest of 10%, i.e. € 10,000, is due. Furthermore, A withdraws €100,000 for private use.

In this case, a takeover of € 80,000 (€ 100,000 withdrawals – € 20,000 deposits) is incurred.

SEGMENT021 Example 2 for calculating the takeover:

B owns a company he founded by making a cash contribution of €50,000 in 01. In the same year, B generates a profit of € 80,000. In addition, he takes out a loan of € 100,000. On this, debt interest of 10%, i.e. € 10,000, is due. Furthermore, A withdraws €100,000 for private use.

In this case, there is no transfer, as the deposits and the profit (€50,000 + €80,000) exceed the withdrawal of €100,000.

In order to calculate the amount to be added, however, the assumption is not based on the acquisition, but on the accumulated acquisition. This results from the takeover (undertaking) of the current and the previous marketing year.

4. determination of the additional amount according to § 4 para. 4a pp. 3 and 4 EStG

The add-on amount is obtained by a cross-period calculation. This constitutes the essential characteristic of § 4 para. 4a EStG. As a result, all acquisitions and undertakings are summed up from 1999 to the individual assessment year. Thus, transfers of previous marketing years are relevant for the determination of non-deductible debt interest.

§ 4 Abs. According to Article 4a(3) of the EStG, the cumulative acquisition is to be classified as a non-deductible operating expense at a flat rate of 6 %. The accumulated take-over shall result from the take-over of the marketing year and the take-over or take-over of the previous marketing year. However, the cumulative takeover is limited. This is done through the accumulated withdrawal surplus consisting of the total withdrawals minus all deposits since 1999. The amount determined is according to § 4 Abs. 4a S. 4 EStG to be added to the profit. However, at most the amount of the incurred debt interest less € 2,050.

The incurred debt interest includes expenses for obtaining and securing a loan as well as additional costs of borrowing and raising money. In addition, interest on repayment, suspension and deferral shall be included in the interest to be reduced. Nevertheless, debt interest from investment loans is not according to § 4 Abs. 4a to include EStG.

continuation of Example 1 for determining the amount to be added: