date | theme

May 5, 2021 | GmbH & Co KG in Austria: 25% tax at German bodies!

17. May 2021 | Tax law in Austria: ESt KöSt VAT & real estate income tax

August 5, 2021 | Holding in Austria – Advantages and disadvantages

12. November 2021 | Group taxation in Austria & German bodies in comparison

15. April 2022 | Essential principle: Accounting in Germany and Austria (this contribution)

Both German and Austrian corporate taxation are familiar with the principle of decisiveness. Nevertheless, it is subject to a different understanding in both countries. While Austria is treading the path to a single balance sheet, there are ever more comprehensive divergences in Germany between trade balance and tax balance. This has resulted in two balance sheets, which must now be drawn up according to different criteria.

A single balance sheet, on the other hand, is characterized by the trade balance and tax balance being identical. This article explains the differences between the balance sheets of the two countries and the advantages and disadvantages of a single balance sheet.

The authoritative principle is currently much discussed. Sometimes it is called for abolition and, on the other hand, its strengthening. In essence, this principle is concerned with the relevance of the commercial law principles of proper accounting for tax profit determination. Thus, the tax balance is supposed to consist almost of the trade balance. In Germany, BilMoG lays the foundation for a progressive divergence between trade balance and tax balance. This tends to result in an increase in tax revenue. Decisiveness, on the other hand, means that funds remain within the company, since the profit is to be set lower. In Austria, the path is quite different than in Germany. There, the tax balance moves ever closer to the trade balance. This effectively creates a single balance sheet.

The authoritative principle has certain advantages. As an argument, it can be argued that the Treasury is regarded as a silent partner in the company’s profits. Therefore, it should be opposed to the same tax base as the shareholders in the distributions. Thus, the profit should be objectively determined equally for both.

Taxation must be sufficiently prescribed by law to meet the determination requirements. However, the principles of proper accounting are not based on tax laws. In addition, various options, forecasting decisions and valuation leeway do not form an objective basis for determining profits. Nevertheless, the principles of proper accounting are codified in commercial law in many places. In addition, there are also various indefinite legal terms in the public intervention law. The principles of proper accounting are sufficiently determinable and therefore meet the determination requirements.

The decisive argument for the key principle is the simplification of accounting for the taxpayer. Ultimately, this could also lead to better compliance with commercial accounting obligations, which accordingly requires more certainty about the liquidity of the company for business partners.

The decisiveness principle also limits the authority of the Treasury to intervene. This can then no longer apply the full range of fiscal policy measures in the context of profit determination. Rather, it is clear from the beginning how the profit is determined. Tax opening clauses for a deviating profit determination then do not exist.

It is also contradictory if the legislature on the one hand restricts the authoritative principle. However, companies receive various subsidies. It could therefore be more efficient to determine the profits directly cautiously and to leave them in the company instead of distributing funds earmarked afterwards. In particular, companies could then freely dispose of the funds and would not have to use them for purposes for which they are actually not so urgently needed.

But also against a unit balance sheet and the authoritative principle various arguments are put forward. Sometimes the trade balance and the tax balance are to be completely different in their purpose. The trade balance serves only the information function. However, the Treasury does not invest in a company and does not make any entrepreneurial decisions. Therefore, the information function is meaningless for the Treasury. Rather, the tax authorities may in any case sovereignly enforce their taxation rights and are limited therein only by constitutional law and jurisprudence. Therefore, the tax balance is aimed at determining the full profit and not the withdrawable profit.

It is sometimes pointed out that the principle of determinability does not properly represent performance. The precautionary principle in commercial law could be used for comprehensive designs and undervaluations. Moreover, it is not for the creation of provisions, especially for workers and landlords. They could therefore be penalised.

However, it is not the sense of the precautionary principle to anticipate possible future losses, but rather to present the deadline faithfully. Furthermore, entrepreneurs are exposed to various entrepreneurial uncertainties, while others can often earn their income without income insecurity. This could therefore require opening up opportunities for entrepreneurs to represent the entrepreneurial risk in the tax determination of profits, for example through provisions.

The profit determination in Germany is in an intermediate stage between unit balance sheet and independent profit determination law. Significant discrepancies between the trade balance and the tax balance result in particular from the extensive tax recognition bans for provisions. In the long term, the trade balance will probably be abolished in Germany, since the international regulatory standards can be used for information purposes and tax profit determination with modifications can be used for distribution purposes.

A harmful deviation from the decisive principle for the taxpayer is the prohibition of recognising threatening loss provisions according to § 5 paragraph 4a EStG and the limited loss carry-back according to § 10d paragraph 1 EStG. In addition, in principle only a material measure applies in Germany. As a result, the trade balance approach alone is fundamental and not absolute. Nevertheless, despite this principle, tax provisions are limited in their amount to the provision arising under commercial law.

We explain the different types of tax in Austria (income tax / corporate income tax / real estate income tax)

In Austria, on the other hand, modern and efficient accounting rules should be applied. In this way, the legislator wants to increase the meaningfulness and comparability of the company-law annual accounts. Therefore, there are two types of profit determination, each of which applies a determining principle. On the one hand, the company-law business assets comparison pursuant to § 5 öEStG and, on the other hand, the tax assets comparison pursuant to § 4(1) öEStG.

In the case of the business assets comparison according to § 4 (2) öEStG, the general principles of proper accounting are to be applied i.e. those principles which result from the nature of an business assets comparison. This includes, for example, the principle of realisation and the principles of balance sheet continuity and accuracy.

In addition, according to § 5 (1) sentence 1 öEStG, the special company law principles of proper accounting must be observed in the context of the tax comparison. These include the more specific valuation principles, such as the precautionary principle and the imparity principle. Nevertheless, there is also a kind of tax opening clause in Austria. Accordingly, in the context of the tax profit determination, the mandatory tax profit determination rules must also be followed. In addition, restrictions can also result from the systematics and teleology of tax law. These include the efficiency principle, the accruals principle and the principle of equal taxation. However, only those entrepreneurs who are subject to the accounting obligation and who receive income from business operations need to make the tax comparison.

Nevertheless, a so-called formal decisiveness applies in Austria. Accordingly, the relevantness includes both accounting for the reason and accounting for the amount. Consequently, the approach in the company balance sheet can be characterised by tax considerations. Tax elective rights must also already be implemented in the company balance sheet in order to be effective for tax purposes. This aligns differences in the valuation between company balance sheet and tax balance sheet and reduces special tax regulations.

Ultimately, the decisiveness principle in Austria makes the creation of its own tax balance sheet obsolete. Alternatively, it is possible to present the tax deviations in a separate list next to the company balance sheet – the so-called multi-less bill. The latter also practically predominates. Accordingly, under Austrian tax law, threatening provisions are possible according to § 9 (1) no. 4 öEStG.