Investment deduction

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As investment allowance, a profit off the balance sheet reducing operand of the referred under German tax law, companies according to § 7g EStG for future investment in assets can be formed. The investment deduction amount replaced the previous savings depreciation in the course of the 2008 corporate tax reform .

The investment allowance enables a company to shift depreciation forward to a financial year prior to the acquisition or manufacture of an asset. This means that the tax burden falls in the year in which the investment deduction is used, but increases accordingly in later years. Due to the progressive income tax rate , skilful exercise of the right to choose can result in a final tax advantage over several years. In addition, there is a liquidity advantage from the tax deferral effect.

For tax purposes, the investment deduction amount is to be taken into account outside the tax balance sheet or outside the income-surplus account, while the savings depreciation was carried out within the balance sheet.

Legal situation until 2006 (savings depreciation)

Small and medium enterprises have for the future acquisition or construction of a new movable asset of fixed assets according to § 7g EStG one, thus reducing profit reserves form; this reserve was referred to as a savings depreciation . The reserve was allowed to amount to a maximum of 40 percent of the acquisition or production costs of the asset that the entrepreneur wanted to acquire or manufacture within the following two (five) years. In total, the formation of reserves was limited to 154,000 ( entrepreneurs 307,000 euros) for each business of the taxpayer.

  • The formation and dissolution of the reserve must be traceable in the bookkeeping.
  • As soon as depreciation may be made for the asset (from the time of acquisition or completion), the reserve is to be released increasing profit.

If the planned investment was not made, the savings reserve had to be released at the latest at the end of the second (entrepreneur: fifth), increasing profit after the formation of the reserve. In this case, the profit of the fiscal year in which the reserve was released had to be increased by 6 percent (start-up: 0 percent) of the released reserve amount for each full fiscal year in which the reserve existed.

If the acquisition or production costs were lower than planned, the profit was also increased by 6 percent of the difference between the savings depreciation and the actual depreciation.

If, for example, a savings reserve has been formed for the purchase of a car, no truck may be purchased for this later. At least the assets have to be "functionally identical". For example, it is harmless if a BMW is purchased instead of the planned purchase of a Mercedes because both assets are functionally identical.

In practice, the savings depreciation has led to financially weak companies in particular creating such reserves to create “ tax deferrals ”, even though no investment was actually planned. That works well if enough liquidity is available when the reserve is released.

The second effect was to smooth tax progression by shifting profits.

Legal situation 2008 to 2015 (investment deduction amount)

The 2008 corporate tax reform resulted in significant changes to Section 7g EStG. Most of these changes already applied to annual financial statements from 2007 onwards, especially if the financial year coincides with the calendar year, because the new regulation was to be applied for the first time to financial years that ended after August 18, 2007 (the day the law was promulgated in the Federal Law Gazette ) or for assets that were acquired or manufactured after December 31, 2007 ( Section 52 (23) EStG). The investment deduction amount was derived from the savings depreciation:

  • The investment deduction can amount to up to 40 percent of the probable acquisition / production costs of a new or used , movable asset (Section 7g (1) sentence 1 EStG). The maximum amount for the total amounts deducted on the balance sheet date is € 200,000.
  • In the case of tradespeople or self-employed companies who determine their profit by comparing business assets in accordance with Section 4 (1) or Section 5 (1) of the Income Tax Act, the business assets may not exceed € 235,000; in the case of companies that determine their profit by means of an income statement, the profit (before deduction of the investment allowance) may not exceed € 100,000.
  • The acquisition of an asset must be planned in the following three years after deduction of the investment allowance. The economic good must be described “according to its function”.
  • At the time of acquisition of the asset, an off-balance-sheet addition of 40 percent of the acquisition / production costs is mandatory, but not more than the amount claimed (Section 7g (2) EStG). At the same time, the acquisition costs / production costs of the asset can be reduced accordingly in the balance sheet, i.e. H. the reduction in acquisition costs / production costs constitute operating expenses . This means that there is no effect on profit in the financial year of the acquisition if the actual investment expenditure corresponds to the forecast investment amount and the option to reduce the acquisition costs is exercised. The remaining amount is now the depreciation assessment base. If necessary, a special depreciation for medium- sized companies of a maximum of 20 percent in addition to the normal depreciation is possible.
  • The asset must be at least until the end of the purchase of the following marketing year in a domestic establishment at least 90 percent operationally be used.
  • Each economic asset must be documented individually.
  • If the investment deduction was too high and no further investments are made within the remaining investment period, the remainder must be dissolved retrospectively, increasing the profit after the investment period has expired.
  • If the investment is not made (Section 7g (3) EStG) or if the period of use is not complied with (Section 7g (4) EStG), the investment deduction must be reversed. Interest is only charged within the framework of Section 233a AO .
  • If the above conditions are met, a special depreciation of 20 percent of the acquisition / production costs can be claimed even without making use of the investment deduction amount.
  • Due to the new regulation, if there is no investment, there is no increase in profit in the year in which the reserve is released, but a retroactive change in the tax assessment according to Section 175 Tax Code for the year in which the investment deduction is asserted. Any resulting additional tax demand is charged at 6 percent p. a. interest, starting from the 16th month following the tax accrual (income tax 2007 - interest from April 1, 2009). With the old legal situation there was a profit-increasing surcharge of 6 percent of the reserve amount that was taxable. As a result of the change, profits can no longer be shifted to other assessment periods if there is no investment . B. to use a lower tax rate.
  • The principles developed for the savings reserve due to the necessity of a binding appointment for start-ups in the year before the start of operations apply, in the opinion of the Nuremberg Tax Court, modified for the investment deduction amount, as there are no excessively strict requirements to be placed on proof of the intention to invest.
  • The purchase of the beneficial asset that has already taken place does not prevent the subsequent use of the investment allowance. This also applies if the investment deduction is made retrospectively to compensate for increases in profits due to an external audit .

Special features in 2009 and 2010

Due to the economic stimulus package against the effects of the financial crisis, the following changes will be made in 2009 and 2010, limited to the two years mentioned:

  • The profit limit will be raised from € 100,000 to € 200,000 (only if the profit is determined by means of an income excess calculation).
  • The business assets may now amount to up to € 335,000 instead of a maximum of € 235,000 (only for those reporting).
  • The economic value or substitute economic value of farms and forestry companies may now be up to € 175,000 instead of a maximum of € 125,000.

Legal situation from 2016 (investment deduction amount)

From the 2016 assessment period, the investment deduction amount has been reorganized.

literature

Individual evidence

  1. ^ FG Nuremberg from July 28, 2011 - 7 K 655/10 -
  2. ↑ BFH judgment of March 23, 2016 IV R 9/14
  3. ↑ publisher: New regulations on the investment deduction amounts in the tax determination of profits - Federal Ministry of Finance - Service. Retrieved July 2, 2019 .