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This article was written by
German Public Auditor, Certified Tax Advisor, Partner, Tax & Legal
Certified Tax Advisor, Manager, National Office Tax & Legal
In its decision dated January 15, 2026 (case no. IV R 25/23), the German Federal Fiscal Court (Bundesfinanzhof; BFH) addresses the question of whether the assumption of a debtor capital account in connection with the transfer of a co-partner’s share results in a capital gain.
The facts of the case were essentially as follows: By contract dated December 16, 2008, A transferred his co-partner’s share in a limited partnership to a foundation (a non-tax-exempt family foundation) with effect as of December 20, 2008, under both contractual and real property law. The transfer of the co-partner’s share was to be made without consideration.
A had made substantial withdrawals with the consent of the other limited partners. This resulted in capital accounts on the asset side, which the foundation assumed.
During a tax audit, the tax authorities concluded that these asset-side capital accounts should not be classified as equity accounts, but rather as accounts governed by the law of obligations. In connection with the transfer of A’s co-partner’s share, the foundation had redeemed his loan accounts under the law of obligations. This redemption constituted a payment of the purchase price. Consequently, a capital gain arose from the transfer of the co-partner’s share.
The BFH was unable to rule on the merits of the case due to insufficient findings by the fiscal court. However, it clarifies - with implications extending beyond the specific case - that the payments made to A, which were made with the consent of all partners but without any business-related reason, could not, for tax purposes, result in a claim for repayment by the limited partnership against A that would need to be recognized on the balance sheet. If a commercial partnership grants a loan to its partner without a business-related reason, the loan constitutes partnership assets under civil law; however, under tax law, it does not form part of the business assets due to the lack of a business-related reason. Accordingly, the granting of such a loan must be treated as a withdrawal, which is generally to be allocated pro rata to all partners by reducing their capital accounts. This applies regardless of whether the loan is based on a special agreement or is recorded as a loan on an asset-side partner clearing account.
An incorrect recording of the permissible so-called excess withdrawals in a receivables account does not alter this. In particular, no claim for repayment by the limited partnership against A can be derived from this.
Notice:
In this respect, therefore, the tax accounting treatment of partnerships differs from the perspective under commercial law. Accordingly, loans granted by a partnership to a partner constitute partnership assets for tax accounting purposes only in exceptional cases; otherwise, they are to be treated as withdrawals. This may be particularly relevant for the purposes of Section 15a of the German Income Tax Act. According to this ruling, a recognizable loan relationship requires (a) an explicit loan agreement and (b) a business-related reason for granting the loan. It remains unclear when such a loan is granted for business reasons, in particular whether an arm’s-length interest rate (and corresponding collateral) is sufficient in this regard.