Credit Interest to Obtain Shares from Employing Corporation

An employee of a joint-stock corporation wanted to deduct interest for a loan in order to purchase shares from her employer as income-related expenses. This was necessary to climb up the ladder of hierarchy one-step further. Upon questioning of the tax office, she argued that she was required by labor contract to obtain shares from her employer that she hoped to be advanced. The Finanzamt considered this expense as related to income from capital and not from gainful employment. The taxpayer wanted to have this expense deducted from her income from capital. After going through all instances, The BFH ruled per judgment of April 5, 2006 (re IX R 111/00 [published on July 12, 2006]), that such expenses are usually related to income from capital.

Credit interest on a loan to finance stocks are usually not related to a profession but to capital income – even if the income is simultaneously important to maintain an employee’s position in the company. Something else could be considered if the person were not obtaining any profit from the capital income.

Supposedly, you are asking yourself, why fuss? Deductible expense is deductible if not from one then from another source of income. Pursuant §20 IV EStG you have a tax-free income of € 1,370 (twice as much for married couples). In accordance with §32 a subsection 1 clause 2 no. 1 Income Tax Act you have a tax-free income (after deducting your expenses) of € 7,664 (twice as much for married couples) as an employee.

Published on the old CMS: 2007/2/16
Read on the old CMS till November 2008: 97 reads