6. April 2020

Accounting treatment

Accounting treatment of debt assumption in accordance with §§ 414 et seq. of the German Commercial Code (HGB) BGB and other accessions to debt

The transferee shall apply the same accounting policies that would have applied to the original obligor at the balance sheet date if it had not transferred the obligation. If the originally obligated party was not subject to German tax law, the value that would have had to be recognized under the provisions of the German Income Tax Act or the German Corporation Tax Act is decisive. This ensures that the transferee recognises the obligation in accordance with the meaning and purpose of the provisions in § 5 (7) EStG, taking into account the tax recognition and measurement reservations (BMF 30.11.17, IV C 6-S 2133/14/10001, BStBl I 17, 1619).

In the first final balance sheet after the acquisition, which is decisive for taxation, obligations are to be recognized taking into account the tax recognition and valuation reservations; in particular, the provisions in § 6a EStG are to be observed.

For the valuation of assumed pension obligations in accordance with § 6a EStG, options under balance sheet tax law can be exercised irrespective of the decision of the legal predecessor. The so-called catch-up prohibition under Section 6a (4) EStG does not apply to deficits incurred by a legal predecessor in the first closing balance after the takeover.

Pursuant to § 5 (7) sentence 5 EStG, a profit-reducing reserve of 14/15 may be formed for the profit resulting from the application of § 5 (7) EStG; this reserve must be released in the following 14 financial years at a rate of at least 1/14 of the profit (release period).

If an obligation leaves the business assets before the end of the dissolution period, a reserve not yet dissolved for this obligation shall be derecognised to increase profits (section 5(7) sentence 6 EStG).

Profit within the meaning of § 5 (7) sentence 5 EStG is the difference between the “acquisition costs” at the time of assumption of the obligation and the lower value to be recognised in the following closing balance sheet in accordance with § 5 (7) EStG. If an obligation assumed ceases to exist as business assets before the following balance sheet date, no reserve can be formed for any resulting profit.

Deduction of expenses for the originally obligated party

An expense resulting from a transfer transaction for the originally obligated party in a financial year ending after 28.11.13 may, pursuant to section 4f(1) sentence 1 i. V. m. § 52 Para. 8 EStG may only be deducted as an operating expense for the year in which the debt is assumed and for the following 14 financial years evenly distributed. Expenses are distributed through off-balance sheet additions and settlements (BMF 30.11.17, IV C 6-S 2133/14/10001, BStBl I 17, 1619).

Accessions to debt and assumption of performance with complete or partial debt exemption

In the case of debt assumption and assumption of performance with complete or partial release from debt, the previous contractual relationship between the released party and the creditor of the obligation shall continue unchanged. The transferee undertakes to fully or partially indemnify the previously solely obligated party from future performance obligations. With the BMF letter of 30.11.17, the tax authorities have fundamentally changed their view of the tax treatment. The same application principles now largely apply to the balance sheet of the transferee or acceding party and the balance sheet consequences of the person entitled to exemption as to the assumption of debt (BMF 30.11.17, IV C 6-S 2133/14/10001, BStBl I 17, 1619, marginal 18).

If a debt assumption with a liability-exempt assumption of performance is agreed internally, this leads to a transfer of pension provisions from the employer’s commercial balance sheet to the debtor’s commercial balance sheet. The employer, who is still externally liable for the pension obligation, may waive the recognition of a pension provision if it is virtually impossible for it to be claimed (Küting/Pfitzer/Weber/Mayer-Wegelin, § 249 HGB marginal 619). Exactly this condition is fulfilled with the entry into debt with internal exemption from liability. The employer is released from his pension obligation and must therefore completely release the pension provision. The provisions already formed must therefore be “depassivated” (IDW, 155th meeting of the HFA of 11.9.96, IDW-FN 1996, 529). The balance sheet release leads to the greatest possible economic release from liability.

The company joining the pension obligation must take account of the indemnification obligation entered into by recognising a provision for uncertain liabilities (life annuity obligation) in all forms of debt assumption. This is neither a pension provision nor an indirect pension commitment for which the accounting option exists according to Art. 28 (1) EGHGB, since the pension beneficiary does not act as an employee of the debtor and therefore cannot be a pension obligation of the acquiring company. In this respect, the debt assumption obligation is valued in accordance with Section 253 (2) HGB as a life annuity obligation calculated according to actuarial principles. This valuation is ultimately identical to the valuation of a pension provision, so that the two values will not diverge under commercial law. The life annuity obligation of the debtor corresponds to the amount of the claim (recognized in the balance sheet or netted with the pension provision) from the recourse claim of the primary debtor.