Deductibility of tax provisions for legally non-existent liabilities under corporate income tax

The Federal Court of Justice (BFH) dismissed the taxpayer’s complaint, upholding the lower court’s decision that rejected the deduction of provisions for legally non-existent liabilities. The dispute concerned corporate income tax, specifically challenging whether a provision created by a holding company for potential tax damages against its subsidiaries could be recognized as a business expense under the requirement of a present legal obligation. The court ruled that such provisions are not tax-deductible because the underlying liability had not yet arisen; the mere existence of a dispute or potential future loss is insufficient to establish the "legal certainty" (*Rechtsbestimmtheit*) required for deductibility under German tax law, distinguishing this from general accounting standards that may allow for contingent liabilities.