Tax on defaulted private loan claim

The Financial Court of Düsseldorf has decided that the default of a private loan claim can be taken into account for tax purposes.

The parties involved disputed the eligibility of a defaulted private loan claim.

In August 2010, the plaintiff granted a private loan of around EUR 24,000 with an interest rate of 5%. As of August 2011, the borrower no longer made any repayment payments.

Insolvency proceedings were opened against the borrower’s assets in 2012. The plaintiff then filed the remaining claim of around 19,000 euros in the insolvency table – ultimately without success.

In October 2012, the insolvency administrator notified the local court of the
insolvency’s inadequacy. The insolvency proceedings were finally discontinued in 2016. The plaintiffs claimed the loss from the loan claim in their income tax return for 2012.

However, the defendant tax office initially took the view that the loss on the loan could not be taken into account in the income from capital assets. The Federal Financial Court (BFH) opposed this in the subsequent appeal proceedings and referred the legal dispute back to the Finance Court (BFH, judgment of 24 October 2017 – VIII R 13/15).

In the second instance, the Financial Court Düsseldorf has now upheld the action and decided that the loss of the capital claim can already be taken into account in the year of dispute 2012.

In the opinion of the fiscal court, this results from the special circumstances of the dispute. With the notification of the insolvency inadequacy in 2012, it was clear that the insolvency creditors would no longer receive any repayments in the estimation of the insolvency administrator. The further progress of the proceedings and any changes in the financial situation up to the conclusion of the insolvency proceedings were not important.

The amount of the loss of receivables (approximately 19,000 euros) was not disputed between the parties involved.

Source: Financial Court Düsseldorf