No addition of profits in accordance with Section 15a (3) EStG with existing external liability

Section 15a EStG restricts the loss offsetting options of limited partners in a limited partnership and is certainly one of the most complicated provisions in (income) tax law. The addition of profits included in para. 3 are intended to prevent the fundamental exclusion of loss offsetting (para. 1) from being circumvented by an only temporarily higher contribution or increase in liability as a result of subsequent reductions in contributions. In its ruling of January 16, 2025 (case no. IV R 11/22), the German Federal Fiscal Court (BFH) had to deal with the interaction of such an addition of profits and external liability based on a liability amount entered in the commercial register.

For the limited partner of a GmbH & Co. KG had a liability sum of around EUR 1 million entered in the commercial register but had only paid in EUR 630,000. In the year in dispute, the limited partner made a profit of around EUR 74,000 from the profits and losses from the general, special and supplementary balance sheets. However, it already had a negative capital account of around EUR 315,000 and had also made withdrawals of around EUR 600,000 in the year in dispute.

Section 15a (3) sentence 1 EStG regulates the addition of profits for the limited partner in the event of a reduction in contributions. Insofar as a negative capital account of the limited partner arises or increases as a result of withdrawals (contribution reduction) and insofar as no liability to be taken into account in accordance with Section 15a (1) sentence 2 EStG exists or arises as a result of the withdrawals (external liability), the amount of the contribution reduction is to be attributed to the limited partner as profit in the event of a previous utilisation of losses. In addition to a previous utilisation of losses and the (positive) prerequisite of a reduction in the contribution, the (negative) provision requires that no external liability exists or arises as a result of the withdrawal.

In the case decided, there was indisputably a reduction in the contribution, as the withdrawals made had increased the limited partner's negative capital account. However, the BFH confirmed the view already held by the tax court that an addition to profits was nevertheless out of the question. Insofar as the withdrawals of originally paid contributions had led to the revival of the limited partner's liability, an addition to profits was (indisputably) excluded. Rather, it was only disputed whether the additional withdrawals also triggered an addition to profits. This was because these did not lead to a revival of the limited partner's liability, as a sufficiently high external liability already existed irrespective of the withdrawals.

The BFH confirmed that the wording of Section 15a (3) sentence 1 EStG is unclear as to whether the law also requires that the limited partner's withdrawals are the cause of the existence of liability in the event of the ‘existence’ of liability. However, the necessary interpretation of the provision suggests that an attribution of profit is also excluded if - irrespective of the withdrawal - an external liability of the limited partner exists. The overall purpose of Section 15a (3) EStG is to prevent circumvention of the general limitation of loss offsetting through temporarily higher contributions to the company's assets; otherwise, short-term contributions could create opportunities to offset losses. For this reason, the regulations on the addition of profits are linked in terms of content and terminology to the fundamental restriction on loss offsetting in para. 1. Accordingly, the special provisions on the addition of profits are also intended to ensure that the limited partner is only granted a tax loss offset or deduction to the extent that it is economically burdened by the loss.

A reversal of the loss compensation by means of profit attribution in the event of a reduction in the contribution is based on the fact that the economic burden that initially justified the loss deduction no longer applies. However, if the limited partner has an external liability due to the amount of liability entered in the commercial register, even independently of the withdrawal, the limited partner is liable to creditors in accordance with commercial law, meaning that he is still economically burdened by the loss. This is also taken into account by Section 15a (3) EStG, which expressly stipulates that no profit is added back in cases where the external liability is revived despite a reduction in the contribution. The law therefore already tolerates the fact that the limited partner's economic burden after the withdrawal can be based on a different reason - the limited partner's now existing external liability. In this respect, the economic burden that was relevant until then has subsequently ceased to exist as a result of the withdrawal. However, it has been replaced by the economic burden of the revived or existing liability in accordance with Section 171 (1) HGB, so that - measured against the purpose of the law - no profit addition is required. In the view of the BFH, it expressly makes no difference whether the external liability is revived, has existed continuously or only arises in the year in which the contribution is reduced as a result of the increase in the liability amount in the commercial register.