date | theme

10. June 2021 | Zebra company: Requalification of the income of shareholders of a partnership

17. June 2021 | separation principle vs. transparency principle Consequences & designs

16. August 2021 | Accounting Competition: Does the operating assets or special operating assets take precedence?

26. August 2021 | Co-contractor: Minimum requirement is the position of a limited partner

31. January 2022 | Supplementary balance sheet: What is to be accounted for here? (this contribution)

Partners of a partnership generate income as co-entrepreneurs from commercial co-entrepreneurship within the meaning of § 15 I 1 No. 2 EStG. This commercial income is the share of the co-entrepreneur in the total profit of the co-entrepreneurship. The income is to be qualified both in two stages and determined in two stages. At the first stage of the profit determination, the profit share in the company within the meaning of § 15 I 1 No. 2 S.1 Hs. 1 EStG is to be calculated. This is the share of the shareholder and thus of the income tax subject in the profit of the company. However, the value corrections of the company balance sheet shown in the so-called supplementary balance sheets of individual co-entrepreneurs are also recorded. This article clarifies what a supplementary balance sheet is, what is shown there and what effects the supplementary balance sheet has.

The first stage of profit determination within the framework of a co-entrepreneurship comprises the profit share. This comes from the company balance sheet, which comprises the assets of the partnership. The company balance sheet is derived according to § 5 I EStG from the company’s commercial balance sheet. Therefore, recognition and valuation selection rights at company level are in principle to be exercised in a uniform manner in the trade balance and tax balance. Such a right to vote requires, for example, § 6 II EStG for the depreciation of assets under 800 €. Consequently, this must be exercised in a uniform manner to the trade balance.

Personal tax breaks, on the other hand, do not have to be consistently accounted for in the trade balance. Therefore, special operations or personal arrangements may lead to the correction of the valuations recorded in the company balance sheet. Consequently, the company balance sheet must be corrected in so-called supplementary balance sheets. Election rights in connection with the supplementary balance sheet can therefore be exercised independently of the company balance sheet. Thus, supplementary balance sheets are generally required when circumstances relate to the total assets and affect only the income of the shareholder. Therefore, the supplementary balance sheet is based on the fact that a partnership can only be subject to profit determination and not subject to taxation. Consequently, the principle of transparency obliges us to draw up a supplementary balance sheet.

The supplementary balance sheet is part of the first stage of profit determination for shareholders of a partnership. It is a value correction balance, by which certain situations are correctly recorded for tax purposes. Therefore, only the supplementary balance sheet and the company balance sheet together show the tax-applicable value of the share of the total hand assets for the individual co-entrepreneur. Therefore, the supplementary balance must be included in the determination of the profit share. Consequently, the profit share within the meaning of § 15 I 1 No. 2 S. 1 Hs. 1 EStG consists of the share of the profit or loss shown in the company balance sheet, which is assigned to the individual shareholder by statutes, statutory provisions or profit distribution resolution. In addition, there is the result of a possible supplementary balance. Only when these factors have been combined, the share of the shareholder’s profits is correctly determined.

Consequently, the main purpose of the supplementary balance sheet is to allocate the hidden reserves to the shareholder with whom they were created. Therefore, the supplementary balance sheet does not include legal or economic ownership. It is therefore different from the special balance sheet. Both balance sheets therefore have completely different objectives and should therefore be treated very differently.

Supplementary balance sheets are mainly required in order to correctly record the remunerated acquisition of a co-entrepreneur share (§ 16 I 1 No. 2 and No. 3 EStG). In addition, the transfer of a business to a partnership at book value according to § 24 II UmwStG is recorded there. It is also necessary for the subject-related allocation of hidden reserves in the context of the transfer of individual assets to the company assets.

When acquiring a share of the company, the acquisition costs are regularly above the book value of the share of the company, which follows from the company balance sheet. The reason for this is that hidden reserves are also remunerated in the share purchase price. The excess in the supplementary balance shall then be activated. Therefore, the proportionate hidden reserves in the supplementary balance sheet are to be distributed among the individual assets up to the partial value of the assets capitalised in the company balance sheet. The sub-value is the amount that an acquirer of the whole enterprise would recognise within the framework of the total purchase price for the individual asset. It is assumed that the acquirer will continue the operation. If the sum of the sub-assets is insufficient, the remaining difference to the purchase price shall be recognised as goodwill in the supplementary balance sheet.

The company can claim personal tax benefits on a pro rata basis for the shareholder. A negative supplementary balance sheet must then be formed for the beneficiary partner.

The higher acquisition costs resulting from the supplementary balance sheet lead to higher depreciation. This reduces the share of the shareholder in the company profit. If the top-up amount is not yet exhausted by the depreciation for wear and tear on sale, the remaining amount reduces the gain on sale resulting from the sale of the co-entrepreneur’s interest. Therefore, there is a lower taxable capital gain.

A positive supplementary balance sheet shows on the asset side added value of assets of the total assets and on the liabilities side the surplus capital of the respective shareholder. The continuation of a positive supplementary balance sheet therefore leads to additional expenses, which reduces the profit share from the company’s tax balance sheet. Thus, the taxable profit is also lower. On the other hand, a negative supplementary balance on both sides shows lower values. Thus, the negative supplementary balance leads to less effort. Therefore, it increases the profit share in society. Consequently, the taxpayer has higher income at the first stage of profit determination. As a shareholder, you must therefore also regularly observe the supplementary balance sheet.