Loan receivables in the special business assets upon cessation of business operations of a commercial partnership

According to the principle of corresponding accounting, a partner cannot reduce the value of his loan receivable from a partnership that still exists in order to reduce profits. This is because such a receivable must be reported as equity in the partnership's joint balance sheet. Impairments incurred by the shareholder, e.g., due to the insolvency of the company or exchange rate changes for foreign currencies, can therefore only reduce profits upon the complete termination of the partnership or prior cessation of operations within the meaning of Section 16 of the German Income Tax Act (EStG) and are thus equivalent to contributions to the partnership's assets. It is questionable whether these principles also apply to a commercially oriented partnership within the meaning of Section 15 (3) No. 2 EStG. The Federal Fiscal Court (BFH) ruled on this in its decision of June 12, 2025 (case no. IV R 28/22).

In the case in question, a GmbH & Co. KG (KG) held 100% of the shares in another GmbH & Co. KG, L-GmbH & Co. KG (L-KG), a commercial partnership, as the sole limited partner. The KG was the holder of a loan receivable from L-KG, which was reported in the KG's special balance sheet at L-KG as of December 31, 2022, in the amount of approximately EUR 205,000. The tax office took the view, among other things, that the operations of L-KG had been discontinued as of August 31, 2022, and that therefore the negative capital account of the KG at L-KG, which showed a balance of around EUR -270,000 at the time of cessation of operations should be dissolved and a cessation profit of this amount should be attributed to the KG, which, however, should be offset against the offsettable losses of the same amount in accordance with Section 15a EStG. The KG believed there had been no cessation of business. In the alternative, at least a special operating loss of around EUR 205,000 was to be determined from a partial write-down on the KG's loan receivable from L-KG. The BFH, on the other hand, assumed that the business had been discontinued, therefore only upheld the KG's alternative claim and referred the matter back to the tax court for further hearing and decision.

The assumption of the tax court that a partial write-down of the loan receivable in the case of L-KG as a commercially oriented partnership is excluded until its complete termination is legally incorrect. The principles of corresponding accounting for loan receivables of the shareholder against the partnership in the special balance sheet and the joint balance sheet do not preclude a partial write-down for a worthless loan receivable in the event of a cessation of business operations, which in the case in dispute took place on August 31, 2012. This also applies to commercial partnerships within the meaning of Section 15 (3) No. 2 EStG. The equal treatment of a loss in special business assets with the loss of a contribution to the partnership assets means that the decisive factor for the realization of a loss due to the worthlessness of a loan receivable is the date on which the partnership ceases or sells its business operations as a whole.

Due to the cessation of operations on August 31, 2012, the losses incurred by L-KG thereafter were attributable solely to the (co-respondent) general partner and not to the KG. A limited partner's share of losses in the event of a negative capital account is no longer recognized if, when the balance sheet is prepared based on the circumstances on the balance sheet date—in the case in dispute, the date of cessation—it is clear that the negative capital account can no longer be offset by the limited partner's future share of profits. This is because the legal and economic content of the limited partner's share of the loss then becomes insignificant. In this case and at this point in time, the loss must be distributed among the personally liable partners and the other limited partners – in the latter case, however, only up to the amount of their capital shares and their outstanding contributions – in accordance with the ratio applicable to the distribution of an annual loss. Therefore, after the cessation of operations on August 31, 2012, no (further) share of the joint loss of L-KG was attributable to KG. After August 31, 2012, the losses of L-KG were to be borne solely by the general partner of L-KG and attributed to it as a (negative) profit share.