Questions & Answers
Answers to common questions.
Curated from our articles on tax advisory, statutory audit and legal services — alphabetical, filtered by audience or topic.
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Are there exceptions to the subordination of shareholder loans in insolvency?
Yes, loans from a non-managing minority shareholder holding no more than 10% are generally not subordinated, regardless of voting rights or profit participation. A further exception applies to the acquisition of shares in cases of imminent or actual insolvency. In such situations, legal advice should be obtained in advance.
As of: December 2020
Is a shareholder loan classified as equity or debt on the balance sheet?
On the balance sheet, it is classified as debt. However, due to the shareholder's deeper insight and influence, it is often viewed as a hybrid form. In the event of insolvency, the Insolvenzordnung (German Insolvency Code) treats shareholder loans like equity, automatically ranking the shareholder as a subordinated creditor of the lowest rank.
As of: December 2020
Is a company's rating score permanently fixed?
No, the rating score is not a rigid figure. Through rating-oriented corporate management and targeted balance sheet measures, management can actively influence the outcome. A direct dialogue with the bank representative helps identify specific areas for improvement.
As of: December 2020
When does a shareholder loan risk being treated as a hidden profit distribution?
A hidden profit distribution (verdeckte Gewinnausschüttung) is likely if the loan is not concluded on arm's length terms. The tax office reviews in particular the interest rate and the repayment arrangement. If the conditions are too favorable or unusual, the tax authorities add the interest paid back to profits and reclaim taxes as in the case of a profit distribution. In addition, the contract must be performed exactly as agreed.
As of: December 2020
Why is personal exchange difficult to replace when working from home?
Despite email and digital tools, working from home lacks the spontaneous brainstorming between colleagues in passing. Brief professional conversations among coworkers often lead to new solutions that electronic communication cannot fully replicate. This direct exchange is especially valuable when dealing with new or unclear topics.
As of: December 2020
What is the purpose of a bank rating for companies?
A rating assesses a company's economic situation and expected development, as well as its creditworthiness and potential risks. For banks and investors, it serves as a tool to determine debtor credit quality, default probabilities, and to minimize lending risks. The outcome significantly influences whether a loan is granted and on what terms.
As of: December 2020
What is a shareholder loan and who can grant one?
A shareholder loan is a credit that a shareholder grants to their corporation (e.g. GmbH). It is governed by the provisions of the German Civil Code and entails a repayment obligation of the debtor. As long as the company is not in financial distress, it may repay the loan like any ordinary liability. This form of financing is reserved for corporations.
As of: December 2020
What information must be reported to the Transparenzregister about the beneficial owner?
Pursuant to § 19 Abs. 1 GwG, the following must be reported: all first names and the surname, date of birth, place of residence, all nationalities, and the nature and extent of the beneficial interest. Reporting is done online at www.transparenzregister.de after prior registration. Responsibility for the report lies with the management of the respective company or with the trustee.
As of: August 2021
Which areas of the balance sheet should be the focus for improving the rating?
Key levers are increasing equity, boosting earning power, reducing debt, and securing liquidity. Forward-looking balance sheet management in these areas has a direct impact on the rating metrics used by banks.
As of: December 2020
What fines apply for failure to report or incorrect reporting to the Transparency Register?
Failure to report, as well as late or incomplete reporting, constitutes an administrative offense under § 56 Abs. 1 Nr. 55 ff. GwG. It can be sanctioned with fines of up to EUR 1 million. For serious, repeated, or systematic violations, the fine may be significantly higher.
As of: August 2021
Which process steps does a rating go through?
First, insolvency risks are classified into risk categories and represented using key performance indicators. The indicators are then combined into a KPI system and condensed into a risk assessment by reviewing their values. Based on this assessment, targeted measures for improvement are developed.
As of: December 2020
What are the risks of repaying a shareholder loan before insolvency?
If a company has repaid a shareholder loan prior to insolvency, the insolvency administrator may, under certain conditions, contest the repayment. This applies even if the company was not yet in a crisis at the time of repayment. Caution is therefore advised when making such repayments, particularly during economically strained periods.
As of: December 2020
What advantages does a digitalised firm offer during lockdown?
A largely digitalised firm can switch to home office at short notice, since documents are available electronically and staff can work independent of location. Paper files do not need to be transported, which creates flexibility. In addition, more capacity remains to focus on new technical challenges such as short-time work or bridging aid.
As of: December 2020
What professional challenges did the coronavirus pandemic bring for tax firms?
Firms had to familiarize themselves with new regulations, resolutions, and information almost daily, without being able to draw on prior experience. Topics such as short-time work, VAT changes, and applications for bridging aid affected nearly all clients. Much of it had to be handled on a 'learning by doing' basis.
As of: December 2020
Which specific measures improve a company's rating score?
Particularly effective measures include improving the equity ratio, reducing inventories and receivables, and optimizing the financial structure (working capital, asset coverage). Further actions include adjusting loan maturities, increasing profitability, reducing debt and fixed assets, boosting cash flow, and optimizing communication with capital providers.
As of: December 2020
Which transitional deadlines applied to the initial notification to the Transparency Register?
AG, SE and KGaA had to file by 31 March 2022; GmbH, cooperatives, European cooperatives and partnerships by 30 June 2022; all other legal entities by 31 December 2022 at the latest. However, the transitional deadlines do not apply if the registration obligation already existed under the old law by 31 July 2021, or if registration is expressly required, for example in connection with bridging aid (Überbrückungshilfen).
As of: August 2021
Who qualifies as a beneficial owner under the German Anti-Money Laundering Act (GwG)?
Under § 3 Abs. 2 GwG, a beneficial owner is any natural person who directly or indirectly holds more than 25% of the capital shares or voting rights, or who exercises control in a comparable manner. If no actual beneficial owner can be identified, the fictitious beneficial owners must be reported, e.g. the managing director or board member. For foundations and fiduciary arrangements, extended rules under § 3 Abs. 3 GwG apply.
As of: August 2021
Who is required to report to the Transparency Register since the TraFinG?
Since the Transparency Register and Financial Information Act (TraFinG) entered into force on 01.08.2021, all legal entities under private law (e.g. GmbH, AG, cooperatives) as well as registered partnerships (e.g. OHG, KG, Partnerschaftsgesellschaft) are generally subject to reporting obligations. Trust arrangements and comparable legal structures must also report their beneficial owners. The previous reporting exemption for electronically retrievable register entries no longer applies, as the Transparency Register is now a full register.
As of: August 2021
How do clients benefit from a well-digitalized tax firm in times of crisis?
A digitally equipped firm remains operational even during lockdowns and can promptly support clients with short-time work, VAT changes, or applications for bridging aid. Digital communication channels and rapid information flow enable quick answers to questions. Clients and the firm work through new topics together.
As of: December 2020
How often must entries in the transparency register be reviewed and updated?
Entries must be reviewed for completeness and accuracy on an ongoing basis, but at least once a year. Changes regarding the beneficial owners—such as altered shareholdings, changes of residence, or name changes—must be reported without delay. The review and identification of beneficial owners should be documented, and the documentation retained.
As of: August 2021
How strongly does the rating grade affect the loan interest rate?
The rating grade has a significant impact on interest conditions. At KfW, the interest rate spread between a good and a poor grade exceeds 4 percentage points. At local house banks, the spread can range between 1.5% and 5.4%, and in individual cases even up to 8%.
As of: December 2020