I. Initial situation and background

If the shareholder of a capital company intends to sell his shares or stocks in the company or to liquidate the company against repayment of the capital the resulting profit is subject to the tax of income from business operations (section 2 para. 1 sent. 1 no. 2 and 17 para. 1 sent. 1 EStG). According to section 3 no. 40 EStG 60 % of the resulting profits is subject to tax (so-called partial income method). The capital gain within the meaning of section 17 EStG is calculated from the amount by which the selling price exceeds the acquisition costs after deduction of the selling costs. The same applies to any losses.
Hence, the capital gain is reduced by all acquisition costs, e. g. the capital contribution within the incorporation of the company or the purchase price for the acquisition of the shares, but also by the so-called subsequent acquisition costs, section 225 para. 1 sent. 2 of the German Commercial Code (HGB). According to the previous jurisdiction apart from open and hidden contributions subsequent acquisition costs also included such financial aids of the shareholder which resulted from the corporate relationship and could not be classified either as advertising costs within the framework of income from capital assets or as disposal or liquidation costs. Therefore, granted shareholder loans and guarantees were taken into account as acquisition costs, insofar as they resulted from the corporate relationship.
In order to assess if the financial aid resulted from the corporate relationship, it was previously decisive if the financial aid served as substitution for equity capital. This required a comparison with a prudent businessman. In this respect, the crucial question was if such one would have contributed equity capital to the company at the respective time. If this was the case, the financial aid was considered as equity-substituting financial aid and therefore to be deducted as (subsequent) acquisition costs within the meaning of section 17 EStG. The amount of the subsequent acquisition costs was calculated according to the time at which the financing aid was granted in relation to the company’s crisis situation. This meant that a new loan granted during the crisis was fully considered as subsequent acquisition costs. If, on the other hand, a loan was granted before a crises on which e.g. a so-called subordination in case of crisis was declared only the amount of the loan at that time were considered as subsequent acquisition costs.
This (broad) understanding of the concept of acquisition costs, which solely applied within the scope of section 17 EStG arose from the so-called capital replacement law which corresponded to the legal situation prior to the entering into force of the law on the modernization of the German Limited Liability Company (GmbH) law and on combating abuses (MoMiG) on 1 January 2008.

II. Elimination of the legal basis for the consideration of capital replacement measures

With the entering into force of the MoMiG, the prevailing principle within Limited Liability Companies Act (GmbHG) regarding the equal treatment of equity-substituting and bounded (equity) capital, was repealed. Even though shareholder loans in accordance with section 39 para. 1 no. 5 of the German Insolvency Act (InsO) are subordinated in case of insolvency under current law. They are no longer treated as liable equity unlike to the previous legal situation before the entering into force of the MoMiG.
According to the present opinion of the BFH (11 July 2017 – IX R 36/15), the broad understanding of the concept of acquisition costs within section 17 EStG is no longer justifiable. In fact, the understanding of acquisition costs in accordance with the commercial law has also to apply within the application of section 17 EStG. Correspondingly, (subsequent) acquisition costs of an investment within the meaning of section 17 EStG are now only such expenses that according to commercial and accounting tax principles result to an open or hidden contribution into the capital of the company. Further to additional contributions, additional payments into the capital reserve and cash subsidies this may also include the waiver of outstanding claims if such claims are valuable at the time of the waiver.

III. Protection of legitimate expectations and possible constructing measures

With respect to the long-time jurisdiction and the letter from the Federal Ministry of Finance (BMF) dated 21 October 2010 according to which even after the introduction of the MoMiG the jurisdiction regarding the consideration of equity-substituting financial aids should continue to apply despite of the changed legal situation the then existing, the BFH affirmed a (retroactive) protection of legitimate expectations. Accordingly, the providing of debt capital as a measure to replace equity capital will be considered as subsequent acquisition costs within the scope of section 17 EStG, if this occurred by the date of publication of the judgment (27 September 2017). The decisive perquisite therefore is the “final economic disposition”. The decisive factor for this is the issue or the further letting of the financial aid. If from an economic point of view the future financial aids of the shareholders should turn out to be debt capital, only section 20 EStG is relevant and due to pending revision procedures it is questionable if financial aids of the shareholder have to be taken into account as surplus reducing within section 20 para. 1 no. 7 EStG.
In its judgement, however, the BFH itself has pointed out a possible contractual construction: According to the BFH, debt capital provided by the shareholder can be considered as subsequent acquisition costs within the meaning of section 17 EStG, if such capital measures are economically structured like equity measures. With respect to a shareholder loan, the BFH expressly mentions the agreement of a subordination within the meaning of section 5 para. 2a EStG. However, in such case the strict requirements of the German Federal Court of Justice (BGH) regarding the effectiveness of a subordination in order to avoid insolvency and the associated restriction regarding the possibility of repayment – even before the occurrence of insolvency – have to be considered. With respect to shareholder guaranties a subordination pertaining to the claim for recourse may be a possibility.