A private limited company runs a temporary employment agency and a handyman business. The sole shareholder is a woman, who acts as a director alongside her partner. The company has two receivables which it wishes to write down in 2020. The first debt, amounting to just over €74,000, relates to the partner’s son. He used money from the private limited company to gamble online. The second debt, amounting to €97,000, relates to the partner himself, to whom the private limited company granted an unsecured loan. At the end of 2020, both debtors signed a letter stating that they were only able to repay a fraction of the amounts owed. The private limited company wrote off the claims as extraordinary expenses. The tax inspector refused to accept this write-off, whereupon the private limited company decided to reclassify the loan as remuneration for work carried out.
No grounds for a write-down in 2020
The court ruled that the private limited company had not demonstrated that there was any reason to write down the debt owed by the son in 2020 specifically. The son is employed by the private limited company and could have repaid the debt in instalments. What is more, in 2022 he will still be repaying almost €50,000. The private limited company is unable to explain why no repayment arrangement was agreed in 2020.
Loan conversion implausible
The court takes a tougher line on the claim against the partner. In its notice of appeal, the private limited company acknowledges that the loan was converted into remuneration for work performed, solely because a write-off would not be tax-deductible. The court considers that this course of action was motivated by the shareholder’s personal needs and her relationship with the partner, rather than by business considerations. The private limited company argues that the partner carried out crucial work and supervised the audit. The court finds this entirely implausible. The partner’s regular remuneration in the years 2018 to 2021 amounted to only €8,000 to €14,000 per year. Why would he suddenly be entitled to an additional payment of €97,000? The deduction was rightly refused.