Date:
This article was written by
Senior Consultant, National Office Tax & Legal
Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal
The completeness requirement under Section 264 (1) of the German Commercial Code (Handelsgesetzbuch; HGB), which — by virtue of the principle of conformity — also applies to the tax balance sheet, requires, among other things, that all debts have to be recognised in the debtor’s balance sheet. The existence of debts, however, presupposes an economic burden. That this is also the case when a creditor undertakes not to assert its claim in the insolvency proceedings was decided by the German Federal Fiscal Court (Bundesfinanzhof; BFH) in its judgment of April 21, 2026 (case no. IX R 34/24).
A creditor of an insolvent German limited liability company (Gesellschaft mit beschränkter Haftung, GmbH) initially filed several loan claims against it on the insolvency schedule. In a court settlement, the creditor undertook to withdraw these filings and not to assert the claims in the insolvency proceedings. In the GmbH’s tax balance sheet, the insolvency administrator derecognised the loan liability with an effect on profit and treated this as tax-free operating income. The German tax administrations regarded the creditor’s waiver of the claim in the balance sheet as taxable income and increased the GmbH’s profit accordingly.
Unlike tax administrations, the BFH held that an economic burden existed and, therefore, the liability had to remain recognised in both the commercial and the tax balance sheet. The court settlement neither constituted a legal waiver of the claim within the meaning of Section 397 of the German Civil Code (Bürgerliches Gesetzbuch; BGB), nor could it be assumed with virtual certainty that the creditor would no longer assert its claims.
In the case at hand, the wording of the court settlement expressly referred to the “withdrawal” of the filed claims and to not asserting them in the insolvency proceedings. This does not amount to a legal waiver of the claim, but merely an obligation of the creditor not to assert the claim in the ongoing insolvency proceedings — economically a stand‑still agreement, comparable to a deferral.
Such an agreement alone does not eliminate the requirement to recognise the liability. Contrary to the tax administrations’ view, there is no “de facto waiver of the claim.” The continued legal existence of the claim and the unchanged possibility of asserting it at a later time continue to constitute a present economic burden, which must be taken into account under the prudence principle and the requirement to fully disclose existing risks. That asserting the claim may often be unpromising in the normal course of insolvency is irrelevant: decisive is whether enforceability of the claim is excluded with virtual certainty. Even after the conclusion of insolvency proceedings there may remain realisation options, for example under insolvency plans, the release of asset components, or by subsequently arising assets.
Finally, the BFH clarifies that a court settlement does not constitute a case of the prohibition to recognise liabilities in the tax balance sheet under Section 5 (2a) of the German Income Tax Act (Einkommensteuergesetz; EStG). The rule that obligations which are only to be fulfilled insofar as future receipts or profits occur are to be recognised for tax purposes as liabilities or provisions only when those receipts or profits have actually arisen presupposes that the creditor’s claim is contractually linked exclusively to the debtor’s future assets. If repayment could also be made from assets not subject to insolvency proceedings, Section 5 (2a) EStG is not applicable. Whether insolvency‑free assets actually existed on the relevant balance sheet date or whether there was a concrete possibility to create such assets is not decisive.
Note
The BFH decision that mere declarations of withdrawal or stand‑still agreements in insolvency proceedings do not automatically lead to derecognition in the commercial and tax balance sheet is in line with practice — no taxable gain should be assumed. A different conclusion could apply, however, if the enforceability of the claim is practically excluded with virtual certainty; merely low prospects of success are not sufficient.