When can a capital participation in a company be considered as a loss for tax purposes?
July 29, 2013 | 40,00 EUR | answered by StB Patrick Färber
Hello,
I entered into a silent partnership with a sole proprietorship e.K. on 02.09.2009. My investment amounts to 20,000 euros, which were transferred in full to the company's account after the contract was signed.
The company generated revenues until mid-2010, but never enough to cover the operating costs. Therefore, it incurred losses.
In mid-2010, the company owner fell ill (allegedly) and ceased business activities. Annual financial statements or balance sheets were repeatedly requested until a court bailiff delivered a demand, but were never provided. Legal action has not been considered so far due to the amount in dispute and associated costs, as it is assumed that the investment has been completely depleted, even fraudulently.
The company owner is registered at an old address, where he has a mailbox but no longer resides. A writ of execution for a lesser amount (claim for legal fees) could not be enforced as the debtor was repeatedly not found.
My question:
I intend to claim the full investment as a loss in my income tax return for 2012. The tax office is unaware of the investment to this day, and it was never mentioned in the income tax returns for 2009, 2010, and 2011. Can I do this for 2012? Or should it have been done in 2009? Or is it only possible in 2014, as I would have to receive the investment back by then?
How will the tax office react if I explain that I have never received any accounting documents and the company owner has refused to provide any cooperation or evidence, even confirmation letters?
Thank you and kind regards.
Your request is not easy to answer. Based on the information provided and considering your situation, I can give you the following advice:
- It depends on whether it is a typical silent partnership or an atypical one (also involving participation in the company's profits/reserves (contract content?
- If it is a typical silent partnership, then it falls under capital income, otherwise it is considered commercial income.
Based on your description, I am more inclined to believe it is a typical silent partnership!
- Profits and losses for typical silent partners require the presence of (certified) annual financial statements or other profit determinations, as well as recording/receipts on the capital account. Losses can, under certain circumstances - at the discretion of the tax authorities - be claimed as "advertising costs", but only up to the amount of the deposit. Since you do not have any annual financial statements, you cannot claim anything at the moment.
- If you had such documents and there had already been inflows/credits, you would have had to report the profits/interests/losses in the respective years.
- Therefore, you cannot claim a deduction for the deposit itself in 2012.
- If you lose your deposit in 2014, all that can be said at the moment is:
Capital gains and losses from silent partnerships through sale or settlement have been subject to taxation since 2009 (flat-rate tax, capital income).
Whether this also applies in the event of insolvency is affirmed by tax law literature, as since 2009 the separation between capital stock (tax-irrelevant asset level) and capital gains (taxable) has been largely abolished. Therefore, the same rules should apply as in the case of sale or settlement. The problem with insolvency and the resulting loss is that it does not result from the contractual relationship, which may lead the tax authorities to not recognize the loss.
If the loss were to be recognized, it could only be offset against profits from capital income. If no profits are present, the loss would be carried forward to subsequent years and offset against future capital income.
I hope I was able to provide you with an overview. In summary, it can be said that the possible total loss of the deposit can only be claimed at the earliest in 2014.
Best regards
Patrick Färber
Tax advisor
post@richtig-gegensteuern.de
