Tax Tip: When does a credit within the family pay

Couple with children: Fiscal unwanted designs in the family should be prevented.
For loans among family members, various drop heights must be overcome in order to benefit from the withholding tax rates. Here the conditions are.

Private capital gains are generally subject to a flat tax rate of 25 percent plus solidarity surcharge. But this does not apply when persons close to one another grant a loan and if arise from advertising costs or business expenses.
With this restriction, fiscally unwanted instruments shall be prevented in the family circle. For example, a family member who is a professional or an entrepreneur receives a loan from another family member. The borrower settles its interest expenses, reducing his income, which is loaded with up to 45 percent marginal tax rate. The lender in the family, however, taxed the corresponding private interest earned only 25 percent. This results in a tax saving for the family of up to 20 percent.
exclude not only because of the Verwandschaftsvergältnisses
Already in several judgments from the year 2014 (VIII R 31/11, R 09/13 VIII, VIII R 35/13, VIII R 44/13) the Federal Fiscal Court (BFH), however, had decided that the application of the withholding tax rate not only alone may be excluded because of a family relationship. Even between spouses of BFH will not rule out in principle the recognition of loan relationships. However, harmful if there is a situation in which a dominant or outside the loan relationship reasonable influence can be exercised on one of the family members or is a private commercial interest in achieving the income of the other. Following the recent decision of the BFH this is the case for example, if a taxpayer’s spouse, the income has neither regular (work) larger assets, a fully-financing loans for the purchase of a foreign let property granted (judgment of January 28, file number: VIII R 8/14).

BFH has excluded the application of the lower flat tax tariff, and subject them to the normal progressive income tax on the obtained therefrom capital gains. The dominant control of the lender exists here is that the borrower’s lack of own funds, an alternative financing, such as a bank, would not have been possible.

Careful documentation and settlement is advisable
The tax authorities have now revised their opinion of the BFH-law and also includes for loans among members of the application of the withholding tax rate no longer basically of (BMF letter of 9 December 2014 Docket IV C 1 – S 2252/08/10004: 015 ). This results in the application of the withholding tax rate on loans to related parties following requirements: first, absence of dominant influence on the borrower or its own economic interest and secondly, the agreement must in each individual case and during the term of the contract on the content and implementation correspond to what foreign would arrange third usually. Benchmark for loans were basically normal bank contractual arrangements, particularly with regard to maturity, interest rate, interest payment dates, collateral values, and collateral.
Although the BFH keeps this individual deviation from Bank Standard for harmless. However, guessing is careful documentation and settlement of the loan ratio in compliance with the objectives set by tax authorities and courts limits. After the written record of the usual bank contract terms, the contract must be implemented accordingly. Because regardless of the substantive details of contracts that are not implemented as agreed, quite generally not recognized for tax purposes.