Germany: court allows business-related insolvency fees to qualify for deduction

Business connection, not a blanket insolvency exclusion

The dispute concerned the 2016 and 2017 tax balance sheets of an individual transport-business owner whose insolvency began in 2015. Operating assets and goodwill had been sold to a newly formed company, but business liabilities remained with the debtor. The court rejected a complete denial of deduction simply because private debts were also present.^[1]

The interpreted provisions are section 4(4) of the Income Tax Act (EStG), defining business expenses by their business connection, and section 5, governing tax balance sheets. In the court’s analysis, a clearly separable business element of the administrator’s work can qualify; uncertainty over its amount does not itself justify disallowing everything. Any allocation still requires factual support.^[1][2][3]

Recognition and payment are different questions

Section 249(1) of the Commercial Code (HGB) requires provisions for uncertain liabilities; EStG section 5(1) links commercial accounting principles to the tax balance sheet. Under Insolvency Code (InsO) section 63 the administrator has a remuneration claim, while section 64 provides for its determination by the insolvency court. The judgment distinguishes a claim developing with work performed from its later payment date.^[1][3][4][5]

The court also found that EStG section 5(2a), concerning obligations payable only from future income or profits, did not block recognition here: the claim already burdened existing assets. However, the lower court must establish whether balance-sheet accounting remained available after the asset sale. Otherwise deduction would require actual payment. Valuation, allocation and the relevant periods remain for further examination, including EStG section 6(1) number 3a.^[1][2][3]

A bounded restructuring-review implication

For groups reviewing distressed-business acquisitions, the useful distinction is between acquiring operating assets and assuming the seller’s debts. This is not a ruling awarding a deduction to the acquiring company or every corporate debtor. Corporation Tax Act section 8(1) refers to both EStG and corporate-tax rules; separate corporate facts and restrictions still matter.^[1][7]

Nor does the judgment establish a universal fee percentage. The Insolvency Remuneration Regulation (InsVV), section 19, preserves earlier versions for proceedings requested before October 2020 or January 2021. Current fee brackets therefore cannot simply be applied to this 2015 proceeding. The brief reports the court’s interpretation, not an independently reconstructed historical fee calculation.^[1][6]