At the end of each year, liabilities must be recognized at the respective settlement amount. Since the passing of the Tax Relief Act 1999/2000/2002 of 31.03.1999, non-interest-bearing liabilities must be discounted in the tax balance sheet at an interest rate of 5.5 % and valued accordingly at their present value. This does not apply to operating liabilities with a term of less than 12 months or which are based on an advance payment or prepayment. With a few exceptions, liabilities in the commercial balance sheet are generally measured at the settlement amount, i.e. not discounted. This inequality will be eliminated by the Fourth Corona Tax Assistance Act of 19.06.2022 – also for the purpose of reducing bureaucracy and to simplify taxation.
Pursuant to the new version of § 6 (1) No. 3 of the German Income Tax Act (EStG), liabilities will be valued at their nominal value (= repayment amount) as of 01.01.2023. According to the explanation of the law, the previous discounting requirement could only be objectively justified if an obligation was formally non-interest-bearing, but actually also contained an interest component. Given the (still) current low-interest phase with market rates of 0 % or even negative interest rates, the previous discounting requirement is no longer tenable and will therefore be abolished.
The discounting requirement can also be waived before 01.01.2023 for all assessment periods that are not yet final. All that is required is an informal application, which, however, can only be submitted uniformly for all the fiscal years concerned.
Non-interest-bearing liabilities from previous years that have already been recognized as liabilities can be reversed, reducing profits by the amount of the discounting volume that still exists. For all future fiscal years, the discontinuation means a significant valuation relief for the tax balance sheet. In addition, deferred taxes will no longer be reported in the commercial balance sheet. Non-interest-bearing liabilities with hidden interest (e.g. with third parties) must, however, be differentiated from this. Accruals and deferrals can be formed for these liabilities, which in turn can lead to different valuation approaches in the commercial and tax balance sheets.
Notices:
Even after the amendment of the law, the discounting requirement and the interest rate of 5.5 % for provisions remain in place unchanged.
The same applies to non-interest-bearing receivables with a term of more than one year. Case law and the tax authorities apply a discount rate of 5.5% to determine the present value for tax accounting purposes in accordance with § 12 (3) of the German Valuation Act (BewG); for commercial accounting purposes, discounting is carried out at a market interest rate with an appropriate maturity.
If the non-interest-bearing receivable is attributable to the private assets of a natural person, the repayment amount must be divided into a non-taxable repayment part and a taxable income part. § 12 (3) of the German Valuation Law (BewG) is also applied, with a discount rate of 5.5%. The taxable income part represents income from capital assets (§ 20 (1) No. 7 of the German Income Tax Act (EStG)) and is taxable at the time of repayment of the entire amount or, in the case of an installment payment, annually. According to relevant BFH case law, a non-interest-bearing receivable (= free transfer of a capital sum) can also constitute a gift within the meaning of § 7 (1) of the German Inheritance Tax Act (ErbStG). Both of the previously mentioned aspects speak in favor of avoiding the agreement of interest-free loans in practice.
The typical discount rate of 5.5% for provisions and for non-interest-bearing receivables no longer appears to be appropriate; current developments should be monitored.