When it comes to the valuation of companies and real estate, there is often talk of the so-called income value method. It shall determine the achievable sales price on the basis of annual profits or revenues generated in recent years. In addition to this method of determination is the so-called market value method. Here one tries to derive the market value of the company or object from comparable sales.
1st Principles of the Market Value Procedure
In income and corporate tax, the current market value of an economic asset depends in many places. The same applies in the form of the common value also in the case of inheritances and donations, i.e. the free transfer of material and immaterial values. For example, withdrawals must be recorded in the profit and loss account with the partial value that regularly corresponds to the market value (§ 6 (1) no. 4 sentence 1 EStG).
The legislator therefore wants to capture the actual economic advantage. For this reason, for example, when gifting real estate, it does not focus on the book value (purchase costs minus depreciation), but on the resale price achievable on the real estate market. This has risen strongly in recent years, especially in large cities, while “on paper” depreciation resulted in an impairment.
The corresponding idea is also based on the market value method. Instead of a complex calculation methodology, the current value of a company or property is derived from actual sales among third parties. An expert therefore considers the general market situation, which in real estate primarily results from the price per square metre. For companies, it depends on the value that foreign third parties attach to the individual shares – for example, a share.
2. The market value procedure for business valuation
Insofar as an valuation is carried out under German law, e.g. for inheritance and gift tax, § 11 (1) to (3) BewG applies to the application of the market value procedure. The standard applies in principle to all types of companies and legal forms, but above all to
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.