Interest barrier

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In German tax law , the interest barrier is an element of corporate taxation that is intended to avoid cross-border tax arrangements between companies for interest .

General

As part of the 2008 corporate tax reform in Germany , the interest barrier is regulated in the Income Tax Act (EStG) and the Corporation Tax Act (KStG) ( Section 4h EStG in conjunction with Section 8a KStG). It is intended to limit the deduction of interest expenses as business expenses for commercial companies.

Background, meaning and purpose

In the past, globally operating companies had achieved through capital injections from abroad that tax-deductible interest expenses were incurred in Germany , while interest income was recorded abroad. The interest barrier primarily serves to avoid these cross-border structures. The interest barrier replaces the regulations on shareholder external financing . A comparable regulation in the USA is known as the earnings stripping rule . In contrast to the previous regulation on shareholder external financing, § 8a KStG a. F., not only corporations, but also natural persons and partnerships are covered by the interest barrier .

Functionality and application in time

The interest expenses (these are all forms of cash capital transfers, including damnum / discount, commissions, fees, etc., not transfers in kind such as rent, lending, etc.) are deductible as operating expenses up to the amount of the company's interest income in the same year, but the net interest expenses beyond that only up to the amount of 30% of the taxable profit before interest income, interest expense, income taxes and depreciation ( EBITDA ). Interest expenses that exceed this limit are not deductible in the year in which they arise and are added to the profit off the balance sheet. The non-deductible interest expense is determined separately by the company tax office and carried forward as a so-called interest carryforward in the following years.

The interest barrier applies for the first time to fiscal years that begin after May 25, 2007 and do not end before January 1, 2008 (for example, the interest barrier applies to companies whose business year runs from July 1, 2007 to June 30, 2008).

When does the interest barrier not apply?

The interest barrier regulation applies to corporations as well as partnerships and sole proprietorships , both for accounting as well as for surplus calculators. Companies within a tax group treated as a business.

The interest deduction restriction should not apply if

  • the balance of interest expenses and interest income (net interest expenses) is negative if it is less than € 3 million. (formerly: € 1 million, increase by the Citizens Relief Act to € 3 million initially for the years 2008 and 2009, since the Growth Acceleration Act unlimited)
  • the company is not part of a group (“stand-alone clause”) or
  • the company is part of a group and its equity / debt capital ratio is no worse than that of the group or falls below it by up to 2 percentage points ("escape clause"). The equity comparison is basically to be carried out in accordance with the international accounting standards IFRS . If the company accounts in accordance with HGB , while the consolidated financial statements are prepared in accordance with IFRS, a reconciliation must be submitted.

criticism

Constitutional concerns

The in some cases non-deductible business expenses associated with the interest barrier has been heavily criticized in the literature. Many authors see the interest barrier as a violation of the net tax principle , which states that only the net profit may be taxed, and thus an incompatibility of the provision with the Basic Law. In a decision published on February 10, 2016, the Federal Fiscal Court (BFH) submitted the question to the Federal Constitutional Court (BVerfG) as to whether the interest barrier is unconstitutional (IR 20/15). In its decision of December 18, 2013 (IB 85/13), the BFH had already expressed doubts about the constitutional conformity of the interest cap. However, the Federal Ministry of Finance ordered a non-application decree on November 13, 2014.

Another problem under constitutional law is that the regulation was introduced retrospectively (see above) without transitional or grandfathering regulations in place.

Other criticism

The option to carry forward interest will often come to nothing: Often the situation of the company concerned, especially the tax EBITDA , will not change significantly in subsequent years, so that interest carryforwards will continue to accumulate and will practically never be usable. At the latest when the business is abandoned or transferred, the lectures will be permanently lost.

The "guillotine effect" of the exemption limit has serious effects in the € 3 million limit, depending on whether the limit is exceeded or fallen below.

The regulation further complicates tax law considerably. A large number of new terms have to be interpreted and used. Without a letter of application from the tax authorities, it will hardly be possible to apply the regulation uniformly. The administrative workload for the companies concerned is high. On the other hand, the regulation invites creative (counter) design measures. According to Michael Meister , Parliamentary State Secretary at the Federal Minister of Finance in the Merkel III cabinet , the regulation will affect “300 companies at most”.

Individual evidence

  1. ↑ This exception only applies to corporations if the interest payments or the like to a shareholder with more than 25% participation do not exceed 10% of the company's net interest expense
  2. ↑ this exception also only applies to corporations if the interest payments or similar to a shareholder with more than 25% participation do not exceed 10% of the company's net interest expense, cf. Wendelin Staats / Stefan Renger, DStR 2007, 1801
  3. ↑ So z. B. Markus Munich: The interest barrier - a constitutional, European and treaty law appraisal, Verlag Peter Lang, 2010, ISSN  1861-695X , p. 61 ff.
  4. ↑ BMF v. July 4, 2008 - IV C 7 - p. 2742 a / 07/10001, cf. Schultes-Schnitzlein, Miske, NWB No. 34 of August 18, 2008, F. 4 p. 5354
  5. ↑ We are 95 percent in agreement on corporate tax. In: faz.net . October 26, 2006.

literature

  • Andreas Messerer: Corporate Tax Reform 2008. Boorberg , Stuttgart 2007. ISBN 3-415-03956-0
  • Andreas Musil, Björn Volmering, Systematic, constitutional and European law problems of the interest barrier, Der Betrieb from January 11, 2008, issue 01/02, pp. 12-16