(2023)
Can I deduct fines, penalties, and warning fees?
Under current law, fines, penalties, and warning fees imposed by a court or authority in Germany or by bodies of the European Union may not reduce profits (§ 4 para. 5 sentence 1 no. 8 EStG).
On this basis, fines imposed by the European Commission to penalise cartel offences are also excluded from being deducted as business expenses. However, it is also possible for EU member states to impose such fines for cartel violations. In this case, the deduction as business expenses is not excluded.
Since 1 January 2019, fines, penalties, and warning fees imposed by an EU member state are also no longer deductible as business expenses (§ 4 para. 5 sentence 1 no. 8 EStG; § 52 para. 6 sentence 10 EStG).
It is also stipulated that other expenses related to the fine, penalty, or warning fee, like the fines themselves, may not reduce profits. For example, interest on financing the fine is also subject to the deduction prohibition as it is caused by the non-deductible expenses.
NOTE: According to § 4 para. 5 sentence 1 no. 8 EStG, a fine imposed - including a cartel fine imposed by the Federal Cartel Office - may not reduce profits. However, this deduction prohibition does not apply if the economic advantage gained through the legal violation has been confiscated, provided that the income and profit taxes on the economic advantage have not been deducted. Therefore, the deduction prohibition does not apply, or does not apply to the extent of a so-called gross confiscation, to avoid double taxation (BFH ruling of 22 May 2019, XI R 40/17).
Fines imposed in criminal proceedings are not deductible. However, fines imposed by a foreign court may be deductible as business expenses if they contradict essential principles of the German legal system.
