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Accounting treatment of the purchase of receivables at below their nominal value in the case of restructuring

If a partner has purchased a receivable against the company at below its nominal value and subsequently waives their claim to the portion of the amount of the receivable that exceeded the purchase price then the resulting reduction in the liability for the company would give rise to a ‘cancellation gain’. Neutralising this gain via a tax adjustment item is not possible. This was the conclusion arrived at recently by the Federal Fiscal Court (Bundesfinanzhof, BFH) and it was in contradiction with the view of the lower court.

Recognition in the special-purpose balance sheet and income realisation in the joint ownership sphere  

Generally, for transactions between a company and partners the correspondence principle will be largely applicable; therefore, assets have to be uniformly recognised in the company’s balance sheet for jointly owned assets and in the partners’ special-purpose balance sheets. However, the acquisition cost principle takes precedence over the correspondence principle. If the purchase price of a receivable was below its nominal value, then the amount that could be recognised in a special-purpose balance sheet would be restricted to the lower purchase value. For the duration of the relationship with the company, the partner would generally not be able to adjust the value of their receivable, but would instead postpone the loss incurred in the special-purpose sphere to a time when the co-entrepreneurship is terminated or the partner has resigned. 

Please note: Nevertheless, according to the BFH, this would not preclude income realisation in the joint ownership sphere. This was the decision of the court in the case where a partner purchases a receivable against the company at below its nominal value and waives the claim to the portion of the amount of the receivable that exceeds its purchase price. 

New BHF ruling on agreements on profit participation rights and their acquisition below value

The BFH, in its ruling of 16.11.2023 (case reference: IV R 28/20) decided on a case where a GmbH & Co. KG [a German limited partnership with a limited liability company as a general partner] had concluded agreements with its creditors on profit participation rights in the amount of €28m. The company recognised the liabilities resulting from these agreements at their nominal value in the balance sheet for jointly owned assets. After the KG got into financial difficulties, the partners purchased the profit participation claims for €14m and, immediately after their purchase, waived their claim to the value that exceeded their purchase price. The waiver had been a condition of the external providers of capital for providing further financing. The KG assessed the waiver by the partners in relation to the profit participation claims they had purchased as not having to be recognised as income for tax purposes. That was why in the tax accounts they neutralised the income shown in the financial accounts from the cancellation of the liabilities via a tax adjustment item.

However, following an external tax audit, the local tax office was of the view that the transactions had resulted in income realisation in the amount of €14m at the KG. The KG refused to accept this and, initially, was successful before the Rhineland-Palatinate tax court. However, the BFH rejected this and ruled that the principle of corresponding accounting did not preclude the recognition of income from the derecognition of the liabilities. 


In the specialist literature some argue that the principles of the BFH’s Large Senate on the tax treatment of the waiver of receivables by a shareholder of a corporation should be correspondingly applicable. Accordingly, the portion of the receivable that is still recoverable would be viewed as a contribution for the corporation and a withdrawal for the shareholder. The amount of the non-recoverable portion of the receivable would give rise to income for the corporation and a deductible expense for the shareholder. The BFH has now, at least in the case in question, rejected this particular interpretation.

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