According to the circular from the Federal Ministry of Finance (BMF) of February 22, 2022 on the useful life of computer hardware as well as operating and user software, the normal useful life of only one year is to be applied for tax purposes instead of the previous three or five years.
Computer hardware includes the following assets:
- Computer: notebook, tablet, slate, mobile thin client
- Station: stationary or mobile workstation, docking station
- Input Devices: keyboard, mouse, scanner, camera, microphone, headset
- External Storage: hard disk, DVD/CD drive, flash memory, streamer
- Output Devices: beamer, plotter, monitor, printer
- Not: mobile telephones, television sets with internet connection installed in conference rooms, computer-controlled machines or vehicles.
Operating and user software are all programmes for data input and data processing, such as:
- standard applications
- individual applications such as ERP software, software for merchandise management systems, company administration or for process control
In accordance with the BMF regulations, the assets concerned are subject to regular depreciation within the meaning of Section 7 (1) of the German Income Tax Act (EStG). Therefore, the general principles on the estimated useful life based on experience or the so-called depreciation tables used in practice so far are to be observed.
The possibility of applying a shorter - i.e., one-year - useful life is neither a special form of depreciation nor a new depreciation method or immediate depreciation. In this context, the BMF also specifies that the application of the shorter useful life - according to the text formulated as “may” ‑, is not to be understood as a tax option within the meaning of Section 5 (1) EStG. Therefore, the taxpayer may also deviate from the approach of the one-year useful life or opt for other depreciation methods.
In any case, depreciation of the relevant assets only begins at the time of acquisition or production. However, the BMF does not object if the depreciation is carried out in full in the year of acquisition or production and the principle of monthly allocation is thus waived. The assets concerned must be included in the inventories as fixed assets.
In principle, all companies can claim the new regulation for financial years after December 31, 2020. In addition, the residual book value of previously acquired or produced digital assets of the business property still existing in the assessment period 2021 can be fully depreciated. For assets held as private property, the new regulations will apply from the 2021 assessment period. No time limit is currently provided.
Notes:
In its circular of February 22, 2022, the BMF revised the previous circular of February 26, 2021 and attempted to classify the initially published regulations on the one-year useful life for computer hardware and software in line with the system. However, the updated BMF circular also gave rise to follow-up questions and not insignificant criticism. In particular, the BMF took up the requests for changes and clarification in the course of a submission by the ranking organisation of the German economy on March 29, 2022 and explained its view again in a previously unpublished circular of April 26, 2022.
Considering that especially ERP software, which is cost- and implementation-intensive, is regularly used for longer than one year, the reduction of the useful life to only one year contradicts the statutory regulations on the estimated useful life based on experience within the meaning of Section 7 (1) EStG. In addition, it ultimately remains an option - even if not within the meaning of Section 5 (1) EStG according to the BMF definition - because it is permissible to deviate from the one-year useful life in favour of another depreciation method.
Furthermore, it should be noted that the updated BMF circular also has no significance for the commercial balance sheet. Therefore, the fundamental question is already disputed whether a different useful life in the commercial and tax balance sheet for the assets mentioned in the BMF circular is legally possible at all, keyword: authoritative principle. In addition, corresponding book value differences between commercial and tax balance sheet lead to the calculation of deferred tax liabilities for medium and large corporations.
Overall, it is shown that the so-called sub-legislative regulations adopted with the BMF circular of February 22, 2022 are not likely to be practicable, especially for companies reporting on their balance sheets. In addition, the BMF circular is increasingly criticised in professional literature due to possible violations of German and EU law.