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The Federal Fiscal Court (BFH) ruled that profit reductions resulting from interest claims are not covered by § 8b Abs. 3 Sentence 4 or Sentence 7 of the Corporate Income Tax Act (KStG). In a decision published June 11, 2026, the court also clarified that the “closeness” provision in § 8b Abs. 3 Sentence 5 KStG does not apply to natural persons, even if they are shareholders in both the lending and borrowing companies. This ruling overturns a previous decision by the Finance Court (FG) of Berlin-Brandenburg and returns the case for further trial to determine if the transactions constituted a hidden profit distribution.

Why are interest claims excluded from § 8b KStG?

According to the BFH, profit reductions from interest claims do not take the place of a share’s value and are not part of equity-like financing. The court stated these claims are not based on a legal act comparable to granting a loan under § 8b Abs. 3 Sentence 7 KStG.

The BFH characterized these as standard debt interest rather than deferred or novated claims with loan characteristics. Consequently, the court determined that interest losses are not encompassed by § 8b Abs. 3 KStG.

How does the court define “closeness” for natural persons?

The BFH found that the FG Berlin-Brandenburg misinterpreted § 8b Abs. 3 Sentence 5 KStG. The court ruled that this provision only extends the rules of Sentence 4 to persons close to a shareholder as defined by § 1 Abs. 2 AStG.

Because Sentence 4 requires corporate shareholders, the BFH concluded Sentence 5 cannot be extended to include natural persons. The court rejected the argument that the later introduction of § 3c Abs. 2 Sentence 2 EStG should change this interpretation for the 2013 dispute year.

Did You Know? The second company involved in this dispute had its insolvency proceedings rejected in 2014 due to a lack of assets and was officially deleted from the commercial register in 2015.

What happens with hidden profit distributions?

The BFH vacated the lower court’s judgment because the FG failed to investigate whether the loans and securities provided constituted a hidden profit distribution (vGA) to the sole shareholder, identified as A. The BFH noted that vGA can occur when a company grants an unsecured loan to a person close to a shareholder for reasons stemming from the corporate relationship.

In this case, the plaintiff GmbH wrote down 136,646 EUR, consisting of 127,867 EUR in principal and 11,949 EUR in interest. Because the FG did not make sufficient findings regarding whether these loans were “arm’s length,” the BFH ruled the matter was not yet ready for a final decision.

Expert Insight: Samantha Carter notes that this ruling highlights a critical risk for sister companies. When a corporation provides loans or guarantees to another entity linked by a common shareholder, the tax authorities may view the subsequent write-down as a taxable benefit to the shareholder rather than a deductible business loss.

What may happen next in the legal proceedings?

The case will return to the FG for a new hearing. The lower court may now focus on whether the loans granted by the plaintiff to the second GmbH were conducted under conditions a third party would have accepted.

If the court finds the loans were not “arm’s length,” the write-downs could be reclassified as hidden profit distributions to shareholder A. This would likely result in the denial of the tax deductions the plaintiff sought for the 2013 fiscal year.

Frequently Asked Questions

Does § 8b Abs. 3 Sentence 5 KStG apply to natural persons?
No. According to the BFH, this provision only applies to corporate shareholders and cannot be extended to natural persons.

What was the total amount of the profit reduction in this case?
The plaintiff recorded profit reductions totaling approximately 136,646 EUR, which included 127,867 EUR for the loan principal and 11,949 EUR for interest claims.

Why did the BFH overturn the FG Berlin-Brandenburg ruling?
The BFH ruled the FG misinterpreted the “closeness” provision regarding natural persons and failed to examine whether the loans constituted a hidden profit distribution (vGA).

Should companies reconsider how they document loans between sister companies to avoid hidden profit distribution claims?