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In article no. 126, we reported on the 1997 ruling by a combined chamber (Großer Senat) of the Federal Tax Court on the tax consequences of waiver of shareholder debt (ruling of 9 June 1997 - DB 1997, 1693). The combined chamber held that waiver by a shareholder of a receivable against his corporation results in a contribution to capital in the amount of the going concern value of the receivable where the waiver is motivated by the shareholder relationship and the going concern value is less than the receivable's face value.

In a judgement dated 26 January 2000 (2 K 381/00 - EFG 2000, 669), the Munich Tax Court applied the 1997 ruling to waiver of a debt claim against a limited partnership (KG) by a non-partner where the creditor, by waiving his claim, acquired an interest as silent partner in the partnership.

At issue in the case was the taxable loss incurred by the former creditor and new silent partner upon the subsequent dissolution of the KG. The Tax Court held that the debt was worthless at the time of waiver, hence that the silent partner's loss upon dissolution of the KG was likewise nil.

The Tax Court permitted an appeal to the Federal Tax Court, where the case is currently pending under docket no. VIII R 10/00.

Editorial cut-off date: 07 June 2001

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