Deferred taxes

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Deferred taxes (from latin latens , "hidden") are hidden tax burdens or tax advantages that have arisen due to differences in the approach or valuation of assets or debts between the tax balance sheet and the commercial balance sheet and which are expected to decrease in later financial years , This means that in the future it will lead to differences between tax and commercial balance sheet profits. Deferred tax assets should show future tax advantages (future taxable higher profit deduction potential), passive deferred taxes future tax burdens (future taxable higher earnings potential).

Emergence

General

Differences in the approach or in the valuation of assets or debts arise due to the different purposes of determining profits under tax and commercial law. Companies in Germany have to prepare a trade balance sheet in accordance with the provisions of the German Commercial Code . This is used to measure the profit distribution and to inform external and internal addressees ( management , shareholders , creditors, etc.). The determination of the taxable profit, on the other hand, is used to determine the assessment basis for taxation. This is usually derived through various adjustments from the commercial balance sheet ( Section 60 (2) EStDV) or is carried out by drawing up an independent tax balance sheet .

The different purposes result in different balance sheet regulations in commercial law and tax law.

While according to commercial law, for the purpose of measuring an (appropriate) profit distribution to protect the creditors, the balance sheet must be carefully accounted for, or for the purpose of informing stakeholders, fluctuations in profits (volatilities) that are purely accounting-related should be avoided as far as possible, tax (special) regulations are to be avoided regularly politically motivated. This is clear from the example of the valuation of fixed assets by means of depreciation: to avoid volatility, linear depreciation would be preferred (unless the “actual circumstances” [Section 264, Paragraph 2 HGB] speak against it); Tax deferral ( subsidy ).

Mathematically, deferred taxes arise from the comparison of the commercial balance sheet with the tax balance sheet , the differences between which are to be assessed using the future tax rate.

In practice, the term DTA (deferred tax asset) is also used for deferred tax assets and DTL (deferred tax liability) for deferred tax liabilities.

Historical development

In Anglo-Saxon countries there is no link between the commercial and tax balance sheets in the form of the German principle of relevance . For this reason, a concept for the definition of deferred taxes was developed for the first time in the USA. Important milestones on this path were Opinion No. issued by the American Institute of Certified Public Accountants (AICPA). 11 in 1967.

At the international level, the IASC adopted IAS 12 in 1979 with effect from January 1, 1981. After several revisions, this standard was adopted again in a slightly modified version in October 1996. This standard was revised several times up to 2004.

To this day, IAS 12 regulates the treatment of income taxes and thus also the accounting and valuation of deferred taxes.

In Germany, the delimitation of deferred taxes was introduced in 1987 by Article 43, Paragraph 1, No. 11 of the 4th EC Directive.

In the HGB, Section 274 forms the basis for accounting for and evaluating deferred taxes. Due to the BilMoG , the repeal of various commercial law regulations and the tendency towards ever greater differences between the commercial and tax balance sheets, the importance of the definition of deferred taxes has increased significantly.

Types of deviation

There are four different cases:

  • (1a) An asset item is higher in the tax balance sheet than in the commercial balance sheet.
  • (1b) An asset is lower in the tax balance than in the commercial balance.
  • (2a) A liability item is lower in the tax balance sheet than in the commercial balance sheet.
  • (2b) A liability item is higher in the tax balance sheet than in the commercial balance sheet.

Cases 1a and 2a have higher tax deduction potential for the future (which is hidden in the trade balance sheet), cases 1b and 2b have higher tax profit potential. Therefore, in cases 1a and 2a, a deferred tax asset must be created, which is to be reversed in the following years if the difference is reversed (realization of the hidden profit deduction potential). Since BilMoG there has been an option with regard to the capitalization of deferred taxes. The release of the deferred tax asset generally leads to deferred tax expenses in the income statement. In cases 1b and 2b, a deferred tax liability must be created accordingly (no option). The legal basis is § 274 HGB.

Small corporations are exempt from accounting for deferred taxes in accordance with Section 274a No. 4 HGB. Whether and to what extent the general provisions of Section 249 (1) of the German Commercial Code oblige small corporations to account for deferred tax liabilities is controversial.

Such deviations arise, for example, when valuing assets from capitalization options under the German Commercial Code (HGB) or from different depreciation methods for the valuation of assets .

The disclosure of deferred taxes in the commercial balance sheet is necessary in order to ensure the correct presentation of the asset, financial and earnings situation according to the actual circumstances as required in Section 264 (2) HGB (see also principles of proper accounting ).

Differences between the trade balance sheet and the tax balance sheet can be temporary or permanent. From temporary differences is when the differences in approach or valuation of assets and liabilities (balance sheet differences) are degraded in the future. Permanent differences do not even out over time, such as non-tax-deductible expenses or tax-free income. We speak of quasi-permanent differences if they are not reduced in the near future in the course of normal business, but are dependent on the planning of the balancing party (e.g. sale of a property).

Accounting

General

When accounting for deferred taxes, there are two ways of determining untaxed expenses or income. One method is based on the past and profit (consideration of differences between commercial profit and tax assessment base in the past) and the other balance sheet-oriented (consideration of the differences between assets and liabilities - so-called 'liability method'). In Germany, the profit-oriented approach was regulated in Section 274 of the HGB until 2009. With the Accounting Law Modernization Act (BilMoG), the internationally common balance sheet-oriented approach has found its way into the HGB. In theory, both concepts lead to the same results.

Liability method

In the balance sheet-based liability method, also known as the liability method, deferred tax assets such as receivables and deferred tax liabilities such as liabilities to the tax office are considered. The right statement of assets and debts is in the foreground. With the liability method, what matters is not the difference in results, but the differences in the individual balance sheet items.

The respective amount depends on the future tax rates to be applied at the time the differences are reversed. Therefore, these tax rates may need to be estimated. A subsequent change in the tax rate means that the deferred taxes must be adjusted.

Deferral method

With the deferral method, also known as the accrual method, the aim is to show the tax expense that would have resulted from the trade balance sheet. This method is P&L-oriented and is used to report success on an accrual basis by virtue of its property as a deferred item.

The tax rate applicable at the time of the accrual is taken as a basis. If this tax rate changes, there will be no subsequent adjustment.

Active vs. deferred tax liabilities

Future higher tax profit deduction potentials (above mentioned cases 1a and 2a) lead to deferred taxes on the assets side (like an asset), higher taxable income potentials (above mentioned cases 1b and 2b) lead to deferred tax liabilities (like a liability). The commercial regulation is § 274 HGB.

  • Deferred tax assets:
    In the commercial balance sheet, an accounting option applies to deferred tax assets. Before BilMoG, a deferred item could be created , according to BilMoG, a separate item “Deferred tax assets” could be created. In economic terms, this item is to be understood as a claim against the tax office. According to the legal situation before the BilMoG, the deferred tax assets could lead to a higher profit disclosure in the commercial balance sheet, but this amount had to be deducted when determining the amount available for distributions. Due to the BilMoG, this restriction is no longer included in the current version of § 274 HGB. However, according to Section 268 (8) of the German Commercial Code (HGB), there is now a distribution block in the amount of the capitalized deferred tax asset surplus. If the option to capitalize deferred taxes is exercised, the resulting income cannot therefore be distributed to the shareholders.
  • Deferred tax liabilities :
    Up to the BilMoG, a provision had to be made in the commercial balance     sheet for deferred tax liabilities ; today this tax has to be recognized as a "deferred tax liability" (accounting obligation). From an economic point of view, these are liabilities to the tax office arising from taxes on future additional tax profits.

When accounting in accordance with IAS / IFRS , both the passivation and the capitalization of deferred taxes that arise from temporary or quasi-permanent differences are mandatory ( IAS 12 ).

rating

General

When accounting in accordance with the German Commercial Code (HGB), before BilMoG, only deferred taxes on temporary differences that are temporary but not quasi-permanent (timing concept) could be accounted for . When accounting in accordance with IAS / IFRS , deferred taxes have always had to be accounted for on quasi-permanent differences (temporary concept) .

If the international accounting guidelines are applied, deferred taxes must also be shown in the event of a revaluation of property, plant and equipment as part of the “Allowed Alternative Treatment”. Since the revaluation takes place directly in equity via a revaluation reserve, which is posted to profit or loss after the revaluation of higher depreciation, however, there is no subsequent profit adjustment. These are permanent differences that actually do not represent deferred taxes. Therefore, IAS 12.61 provides that in this case part of the reserves ( equity ) is reserved for deferred taxes. The entire process is not profitable. In contrast to the HGB, according to international accounting, not only differences in results, but also differences in equity are subject to deferred taxes. Deferred taxes are therefore significantly more important under international accounting than under the German Commercial Code. Its importance becomes particularly clear against the background of falling tax rates in the context of international competition between countries for industrial locations.

Timing concept

In the timing concept, temporary accounting and valuation differences between the commercial and tax balance sheets are taken into account. For this, it is necessary that these differences are reflected in the income statement when they arise and when they reverse, which creates a discrepancy between the two balance sheets. If there are non-profit-making differences, e.g. B. due to a write-up not affecting profit or loss, this does not lead to an accrual of deferred taxes, since the result of the income statement does not differ according to commercial and tax law.

The timing concept only takes into account differences that affect profit, but not profit-neutral differences. In addition, there are no indefinite or virtually unlimited differences in the timing concept.

Temporary concept

In contrast to the timing concept, the temporary concept also takes account of differences between the commercial and tax balance sheets that do not affect profit or loss. However, the prerequisite is that they lead to an expense or income when they are dissolved, but not when they arise.

The temporary concept is thus based on the balance sheet, not just on the income statement like the timing concept. The overriding goal is the correct presentation of the financial position in the annual financial statements, whereby the accrual reporting tends to take a back seat.

The timing concept is a subset of the temporary concept. In addition to the temporary differences, certain quasi-permanent differences are also taken into account.

example

For purposes of determining taxable profits, a security is to be recognized as an asset item with a value of € 90,000. In contrast, the value according to IFRS is € 120,000. The difference of € 30,000 is due in the amount of € 20,000 to a write-up via the revaluation reserve in the IAS / IFRS balance sheet that has no effect on income . The company's expected future tax rate is 30%. Since the tax balance sheet approach is now lower than the value determined according to IAS / IFRS, there is a higher income potential for tax purposes (in the event of a sale for example for € 150,000 in the future, a higher tax profit would arise than according to IAS / IFRS). A deferred tax liability must therefore be recognized in the balance sheet prepared according to IAS / IFRS, which is calculated from the valuation difference multiplied by the future tax rate: 30% × € 30,000 = € 9,000. Of these, 30% x € 10,000 = € 3,000 in income over the income statement to capture because the valuation difference in the amount of € 20,000 in equity and only in the amount of € 10,000 was income statement concluded. The amount of € 6,000 is to be posted directly to equity in the debit with no effect on income .

literature

Individual evidence

  1. ↑ Cf. u. a. Statements on IDW ERS 27 and postponement of a final determination by the IDW in this matter Archived copy ( memento of the original from April 23, 2016 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF) @1@ 2Template: Webachiv / IABot / www.idw.de