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Acquisition expenses are to be added to the income to which the closer and economically overriding causal connection exists. The assumption of a guarantee by the employee in favor of his employer, who operates in the legal form of a corporation, can be caused by the employment relationship. If the employee has an indirect interest in the company, the assumption of the guarantee can also be established in the partnership with the parent company.

BFH judgment of 3.9.2015, VI R 58/13 (published on 3.2.2016)

EStG Section 9 Paragraph 1 Sentence 1, Section 19 Paragraph 1 Sentence 1 No. 1, Section 17

Lower court: FG Cologne from May 28, 2013, 15 K 259/12 (EFG 2014 p. 256 = SIS 14 01 62)

I. It is disputed whether payments from the use of guarantees are to be taken into account as income-related expenses in the income from employment.

The plaintiff and defendant (plaintiff) held 50% (€ 25,000) in the share capital of C u.D GMBH (E), which was active in the automotive sector, from 1.1.2001 to 31.12.2010 and acted as its managing director. Another managing director was Mr. C. The plaintiff was responsible for operational management and controlling. With a further articles of association dated February 14, 2006, the plaintiff participated in the share capital of the newly founded F GmbH with 20% (€ 11,900) as well as in the simultaneously founded F KG aA, in which F GmbH was a fully liable partner, with a last 5.71% (€ 240,000) directly on the share capital.

On June 14, 2007, F KG aA took over G AG, which was the sole shareholder of A u.B GmbH (A & B). Mr H became managing director of A & B and the plaintiff took over the sales management within A & B. E provided A & B with the plaintiff's work; The basis was the "Interim Management Service Contract" agreed on April 2nd, 2008 and limited to December 31st, 2008.

On June 5, 2008, A & B and the plaintiff concluded a managing director employment contract, with which the plaintiff was appointed "managing director sales" from January 1, 2009. Since then, the plaintiff has received a manager's salary of € 15,000 a month from A&B.

After a restructuring concept had been drawn up for the necessary capital resources, the A & B were granted loans by the house banks, namely a working capital loan of € 4 million and a current account credit of € 1 million, secured by a state guarantee, among other things. The prerequisite for the state guarantee, however, was that the managing directors active in the operational management level, including the plaintiff, gave a primary guarantee to the state guarantee. Accordingly, the plaintiff guaranteed himself on September 25, 2008 with an amount of € 120,000 and on October 24, 2008 with a further amount of € 43,400.

With a resolution dated July 2nd, 2009, the insolvency proceedings were opened against A & B and the insolvency petition was also filed for F KG aA. The plaintiff thereupon made payments of € 120,000 on November 3, 2009, € 20,000 on December 27, 2010 and € 23,400 on March 30, 2011 after the banks had drawn on the guarantee.

In their joint income tax return for 2009, the plaintiff and his wife, the plaintiff and the appellant, made the payments of € 163,400 on the plaintiff's income from commercial operations as defined in p. of Section 17 of the Income Tax Act (EStG) apply.

The defendant and appellant (the tax office - FA -) did not take into account the losses from the guarantee claim in the disputed income tax assessment and rejected the objection raised against it, because loss consideration for the indirect participation only given here was not possible.

With the action brought against it, the plaintiffs asserted that the payments made on the guarantees totaling € 163,400 should be taken into account as income-related expenses in the plaintiff's income from employment. Because the plaintiff was only able to secure his substantial managerial salary because he had given corresponding guarantees for A & B; only because of this he was able to get and keep this job with the promised salary promise. Accordingly, the plaintiffs applied for the € 120,000 paid on the guarantee in the year of the dispute to be taken into account in the plaintiff's income from employment as income-related expenses.

The Finance Court (FG) upheld the action with the reasons published in the decisions of the Finance Courts (EFG) 2014, 256.

With the revision, the FA criticizes the violation of substantive law.

The FA requests that the judgment of the FG Cologne of May 28, 2013 be set aside and the action dismissed.

The plaintiffs request that the appeal be dismissed as unfounded.

II. The revision of the FA is unfounded and must therefore be rejected (Section 126 (2) of the Financial Court Regulations - FGO -).

1. According to Section 9 Paragraph 1 Clause 1 of the Income Tax Act (EStG), advertising expenses are expenses for the acquisition, security and maintenance of income. According to established case law, such advertising costs exist if the expenses are caused by the profession or by the generation of taxable income. This is the case if there is an objective connection with the profession and the expenses are subjectively made to promote the profession. As the Senate decided in a comparable case with judgment of November 16, 2011 VI R 97/10 (BFHE 236, 61, BStBl II 2012, 343), this also applies to subsequent income-related expenses. These can arise if the employee has to incur expenses in connection with the termination of the employment relationship. In that case, the professional context shown must already exist at the time at which the reason for the expenses was laid.

a) According to Section 9 (1) sentence 2 EStG, income-related expenses are to be deducted for the type of income for which they have grown. If the expenses for several types of income are economically related, according to established case law, the closer and economically more important causal connection decides. According to this, expenses are to be assigned to the type of income that is in the foreground and that supersedes the relationship to the other income. This corresponds to the legal principles that are also to be used for the question of whether a grant from the employer is based on the employment relationship or on other legal relationships (constant case law, judgments of the Federal Fiscal Court - BFH - of December 7, 2005 IR 34/05, BFH / NV 2006, 1068; from April 5, 2006 IX R 111/00, BFHE 213, 341, BStBl II 2006, 654; Senate decision of June 28, 2007 VI B 23/07, BFH / NV 2007, 1870; Senate judgment of November 25, 2010 VI R 34 / 08, BFHE 232, 86, BStBl II 2012, 24; last Senate judgments of April 10, 2014 VI R 57/13, BFHE 245, 330, BStBl II 2014, 850; in BFHE 236, 61, BStBl II 2012, 343; Schneider, Der Betrieb 2006, Supplement No. 6, p. 51 ff .; each with further references).

b) The cognizant Senate has put these legal principles in concrete terms in established case law with regard to the question of whether guarantee losses are caused by the employment relationship. If the employee is also a shareholder in his employer operated in the form of a corporation, the more there is an internal economic connection to the income from capital assets and thus for subsequent acquisition costs of the GmbH participation, the higher the participation of the shareholder-manager (Senate judgments dated July 17, 1992 VI R 125/88, BFHE 169, 148, BStBl II 1993, 111; in BFHE 236, 61, BStBl II 2012, 343; each with further references). Because a foreign employee who is not connected to the employer through a capital participation will only be prepared to take on the risk of a guarantee in favor of his job that is obviously endangered. Conversely, this also means that in the case of an employee who is only involved in the company to a very small extent and who provides a guarantee for his employer, this is an indication that this guarantee is caused by the employment relationship. This is all the more true if the employee does not have any stake in the company and does not generate any further income by assuming a guarantee - unlike, for example, an interest-bearing loan granted to the employer - and accordingly only seeks to secure and maintain his wages.

In principle, this also applies if the employee is not yet involved in his employer under company law, but strives to do so (Senate judgment of 8 July 2015 VI R 77/14, BFHE 250, 518), or if the employee in his employer is not directly but indirectly involved under company law. Just as an acquisition expense can be caused by company law through an initially only intended future participation, it can also be caused by an indirect participation, for example in order to strengthen the direct participation financially.

c) The question of which income is the result of the closer, economically more important causal connection, is decided according to the established case law of the BFH on the basis of an assessment of the circumstances of the individual case, which is in particular incumbent on the factual instance. This is binding in terms of revision law (Section 118 (2) FGO) if the assessment of the facts has been carried out in accordance with procedural law and the assessment does not violate laws of thought or breaches of empirical principles (Senate judgments in BFHE 245, 330, BStBl II 2014, 850; in BFHE 232, 86, BStBl II 2012, 24; BFH decisions of February 10, 2005 IX B 169/03, BFH / NV 2005, 1057; of August 6, 2003 IX B 44/03, BFH / NV 2003, 1604; of January 28, 2003 VI B 161 / 00, BFH / NV 2003, 793).

2. Measured against this, the preliminary decision is not objectionable under revision law. The FG has observed the aforementioned legal principles and, within the framework of its overall assessment, which does not violate the laws of thought or empirical principles, has come to the possible and conclusive result that the assumption of the guarantee by the plaintiff in connection with his profession and his employee position at A&B has stood.

a) The FG based this assessment in particular on the fact that the loans could only be obtained with a state guarantee, but the state would only have agreed to a guarantee if the plaintiff had also given such a guarantee. In turn, his considerable salary and bonus payments as managing director depended on the assumption of guarantee.

b) The objections raised by the revision do not take effect in the result.

aa) In the context of its objections directed against the assessment of the FG, the FA largely disregards the fact that in the case of dispute the plaintiff was not involved in the A&B, for which he was employed as a manager. Accordingly, the FA's objection that a foreign employee who is not connected to the employer through a capital participation is only prepared to assume the risk of a guarantee in favor of his job that is obviously endangered is fundamentally wrong. Since the plaintiff was not a partner-managing director, the FA cannot plead that the employee has to explain and prove the special circumstances under which he assumed the guarantee primarily not because of the participation, but because of his employment relationship.

The same applies to the question of what consequences would have arisen in the event of a refusal to accept losses for the shareholder-managing director concerned. Because this control consideration is also based on the assumption that the disputed expenses in terms of their income tax treatment could not only be caused by income from wages, but also by income from Section 17 of the Income Tax Act.

bb) The IA correctly points out that an indirect participation is not insignificant per se; because the extent of the indirect participation is determined by the question of the extent to which a qualified participation i.S. of Section 17, Paragraph 1, Clause 1 of the Income Tax Act is included. However, this does not result in an allocation to the income from Section 17 of the Income Tax Act, which compulsorily superseded the causal connection to the wage income. Because § 17 EStG only covers income from the sale of a direct participation.

The FG's assessment of seeing a primary causal connection with wage income is also not contradicted by the FA's objection that the plaintiff had promised himself a future-oriented continuation of these companies by assuming a guarantee. Because a future-oriented continuation of the company naturally also safeguards the plaintiff's dependent activity as a managing director and the income generated therefrom within the meaning of p. of § 19 Paragraph 1 Clause 1 EStG.

cc) Contrary to the opinion of the revision, the FG also did not misunderstand the legal principles of the Senate judgment in BFHE 236, 61, BStBl II 2012, 343 to the effect that a specific causal connection to the wage income would be dispensable. Rather, it merely assessed the facts in a way that deviated from the FA's view that, in the event of a dispute, the causal connection to the wage income would not be displaced by the indirect participation. In view of the plaintiff's only minor direct holdings in F GmbH and F KG aA, this appraisal does not constitute a violation of the principles of thought and experience. In particular, contrary to the opinion of the FA, the facts do not only allow the assessment that the plaintiff had assumed the guarantee primarily in order to secure a commitment that was solely on the asset level, in that he via his indirect participation in A & B der F GmbH and the F KG aA had given a hidden advantage. This applies regardless of the fact that the assumption of equity-replacing guarantees for a company in which the shareholder is only indirectly involved does not usually lead to subsequent acquisition costs of the direct substantial participation (BFH judgment of 4 March 2008 IX R 78/06, BFHE 220 , 446, BStBl II 2008, 575, under II.2.b).

c) As a result, the judgment of the FG does not contradict the principle that expenses are attributable to the type of income to which they have the closer relationship. Because nothing has been established that the indirect shareholder position of the plaintiff, which is insignificant under income tax law, compared to his currently employed activity as managing director of A & B, which is associated with concrete income, was in a primary causal connection to the assumption of a guarantee.

3. The decision on costs follows from Section 135 (2) FGO.