German Federal Fiscal Court rules on insolvency administrator compensation

The German Federal Fiscal Court (Bundesfinanzhof) has clarified the tax treatment of remuneration for insolvency administrators in standard insolvency proceedings. In its ruling (Az. III R 35/23), the court determined that costs can be claimed as operating or subsequent business expenses, provided the administrator's management serves to satisfy the business liabilities of the insolvency debtor.

The court ruled that the business-related portion of the compensation is not subject to a general prohibition on allocation and deduction. In cases where both business and private liabilities are involved, a mixed causation exists. The business-related portion must be determined appropriately or, if necessary, through estimation. A criterion for this allocation can be the ratio of reported business liabilities to private liabilities within the proceedings.

In the specific case reviewed, the court identified a ratio of 87.83 percent business-related and 12.17 percent private causation. This decision allows companies that determine profit through a comparison of business assets to form balance sheet provisions for compensation claims that are not yet due. The case has been referred back to the Finance Court of Rhineland-Palatinate for further findings regarding the specific dispute years.