The Bundesfinanzhof (BFH, Federal Fiscal Court) ruled in its judgment of 25 June 2026 – III R 35/23 – on the tax treatment of remuneration paid to an insolvency administrator in standard insolvency proceedings. The decision was officially announced in press release No. 057/26 of 8 October 2026. At its core, the case concerns whether and to what extent claims for remuneration by the insolvency administrator may be taken into account as business expenses at the level of the insolvency debtor, and whether provisions may be recognized for this purpose where profits are determined by means of a comparison of business assets.
BFH on Insolvency Administrator Remuneration as a Business Expense
According to the headnote of the BFH, insolvency administrator remuneration for standard insolvency proceedings may be deductible as current or subsequent business expenses. However, this applies only to the extent that the insolvency administrator’s management is aimed at satisfying the insolvency debtor’s business liabilities.
The BFH therefore does not assess the insolvency administrator’s remuneration as such in its entirety. Rather, the decisive factor is whether there is a business-related causal connection and what portion of the insolvency administrator’s activity is attributable to the satisfaction of business liabilities. According to the decision, a business-related and separable portion of the remuneration is not subject to any general prohibition on apportionment and deduction.
Distinction Between Business and Private Sphere
In the case in dispute, the claimant had, according to his own calculation, divided the remuneration into a business portion and a private portion. According to the presentation reflected in the specialist literature, 87.83 percent was attributable to the business sphere and 12.17 percent to the private sphere.
The BFH relied on the factual findings of the Finanzgericht (Tax Court). According to those findings, the insolvency administrator’s management related overwhelmingly to the satisfaction of the insolvency debtor’s business liabilities and thus to the debtor’s passive business assets. If the business-related portion cannot be determined precisely, the decision states that an estimate may be made.
Provision Where Profits Are Determined by Accounting
If the insolvency debtor permissibly determines its profit by means of a comparison of business assets, a provision for uncertain liabilities may be considered for a claim to remuneration by the insolvency administrator that is not yet due. Here, too, the BFH does not formulate unrestricted recognition, but makes the permissibility of recognizing a provision subject to the requirement that the corresponding method of profit determination applies.
Specifically in dispute in the appeal on points of law was the recognition of provisions for liabilities in the balance sheets as of 31 December 2016 and 31 December 2017. The subject matter of the proceedings was the income tax assessments for 2016 and 2017 of 15 November 2018 in the form of the objection decision of 9 August 2019.
Significance of the Entitlement to Prepare Accounts
The BFH remitted the case to the Finanzgericht Rheinland-Pfalz (Tax Court of Rhineland-Palatinate). In the second round of proceedings, the Finanzgericht must in particular examine whether the insolvency debtor was still entitled at all in the years in dispute to determine its profit by accounting.
If this entitlement to prepare accounts is denied, a provision is ruled out. In that case, a deduction as a business expense would only be possible in the year in which the insolvency administrator’s remuneration is actually paid.
Facts and Procedural History
The insolvency proceedings were opened in 2015 over the assets of the anonymized debtor Z at the Amtsgericht X (Local Court X). The claimant was appointed as insolvency administrator and conducted the proceedings in that capacity on behalf of the insolvency debtor.
For the years in dispute, 2016 and 2017, the claimant declared a loss for the insolvent business in 2016 and a profit in 2017. According to the full text of the judgment, realization of the insolvency estate was completed in 2017.
In the tax returns for the insolvency debtor, the claimant asserted, with regard to his claims for remuneration, the deduction of business expenses in the form of provisions for liabilities uncertain in amount. The Finanzamt (tax office) did not recognize these provisions. The action before the Finanzgericht Rheinland-Pfalz concerned income tax for 2016 and 2017; the action was filed on 9 September 2019.
Arguments of the Finanzamt and the Finanzgericht
The Finanzamt justified its refusal to recognize the provision, among other things, on the grounds that the insolvency administrator could apply to the insolvency court for an advance on his remuneration. Such an advance would then have to be taken into account as reducing profit.
The Finanzgericht Rheinland-Pfalz dismissed the action by judgment of 19 September 2023 – 5 K 1800/19. The judgment is published in EFG 2023, 1779. The headnote of the lower court stated that no provision could be recognized for insolvency administrator remuneration before the insolvency proceedings had been concluded.
In its reasoning, the Finanzgericht relied, among other provisions, on § 12 No. 1 sentence 2 EStG (German Income Tax Act), § 15 para. 4 UStG (German VAT Act), and § 63 para. 1, § 66 para. 1 and § 258 para. 1 InsO (German Insolvency Code). It also relied on the case law of the Bundesgerichtshof (BGH, Federal Court of Justice), according to which the obligation to settle the administrator’s remuneration from the estate generally arises legally only upon termination of the insolvency proceedings, for example on the order of the BGH of 11 November 2021 – IX ZB 19/20.
The Finanzgericht also denied the deduction as a business expense on the further ground that, although the expenses could objectively be connected with the generation of income, they were not subjectively intended to serve that purpose.
Decision of the Bundesfinanzhof
The appeal on points of law was successful before the BFH. The Third Senate objected to the lower court’s decision and remitted the case to the Finanzgericht.
According to the BFH’s decision, a deduction of the insolvency administrator’s remuneration as a business expense may be considered to the extent that the insolvency administrator’s activity is directed toward satisfying the insolvency debtor’s business liabilities. The business-related nature of a separable portion of the remuneration does not result in a complete exclusion of the deduction.
Key Statements of the BFH
- Remuneration paid to the insolvency administrator may be deductible as current or subsequent business expenses.
- The prerequisite is that the insolvency administrator’s management serves to satisfy the insolvency debtor’s business liabilities.
- A separable, business-related portion of the remuneration is not subject to a prohibition on apportionment and deduction.
- If the business-related portion cannot be determined exactly, it may be estimated.
- Where profits are permissibly determined by means of a comparison of business assets, a provision for uncertain liabilities may be considered for a claim to remuneration that is not yet due.
The BFH thereby corrected the Finanzgericht’s view insofar as it had opposed the tax recognition of the remuneration in principle. At the same time, the outcome of the decision remains dependent on the Finanzgericht’s further findings in the second round of proceedings.
Classification for Tax Practice
The decision concerns an interface between insolvency law, tax accounting law and income tax law that is significant for insolvency proceedings. It makes clear that the insolvency administrator’s remuneration is not to be treated uniformly for tax purposes without differentiation.
Rather, the decisive issue is whether and to what extent the insolvency administrator’s activity is attributable to the insolvency debtor’s business liabilities. Only to that extent can recognition as a business expense be considered.
Practical Significance of the Remittal
The remittal to the Finanzgericht shows that the BFH has not conclusively determined the tax deductibility for the years in dispute. In particular, the Finanzgericht must clarify the question of the entitlement to prepare accounts in the years in dispute.
For insolvency debtors preparing accounts, the decision may be significant if claims for remuneration by the insolvency administrator are not yet due but are nevertheless already to be taken into account in the balance sheet. If there is no entitlement to determine profit by means of a comparison of business assets, a provision cannot be considered under the BFH’s requirements.
Publication and References
The judgment of the BFH of 25 June 2026 – III R 35/23 – was published in press release No. 057/26 of 8 October 2026. In the specialist database, the decision is available under BeckRS 2026, 25085; publication in DStR or DStRE has been announced.
The preceding judgment of the Finanzgericht Rheinland-Pfalz of 19 September 2023 – 5 K 1800/19 – is published in EFG 2023, 1779. The appeal on points of law concerned income tax for 2016 and 2017.
Frequently Asked Questions
BFH III R 35/23: Is insolvency administrator remuneration deductible as a business expense?
According to the BFH, the insolvency administrator’s remuneration may be deductible as a current or subsequent business expense. This applies only to the extent that the insolvency administrator’s activity serves to satisfy the insolvency debtor’s business liabilities.
BFH on the Provision for Insolvency Administrator Remuneration: When Can It Be Recognized in the Accounts?
A provision for a claim to remuneration that is not yet due may be considered if the insolvency debtor permissibly determines its profit by means of a comparison of business assets. Following the remittal, the Finanzgericht must examine whether this requirement was met in the years in dispute.
What Practical Consequences Does the BFH Judgment III R 35/23 Have for Companies in Insolvency?
For business insolvency proceedings, the decision may be relevant where remuneration paid to the insolvency administrator must be allocated for tax purposes. The decisive factors remain what portion of the activity is attributable to business liabilities and whether a provision is possible at all under the applicable method of profit determination.
Tax Law Advice on Questions Concerning Insolvency Administrator Remuneration
The BFH’s decision illustrates that the tax treatment of insolvency administrator remuneration must be assessed carefully according to its business connection, separability and the method of profit determination. MTR Legal Rechtsanwälte advises companies, investors and high-net-worth individuals on tax law issues in connection with corporate crises, insolvency proceedings and accounting consequences. Further information can be found at legal advice in tax law.
