Tax Court Kassel Lowers Hurdles for Write-Downs of Current Assets

German Tax Court jurisdiction changes accounting approach for write-downs of current assets of stock market traded securities

The Tax Court in Kassel, Germany, ruled on February 14, 2014, that listed securities held in the current assets may be written down to their lower market prices on the balance sheet date, irrespective of the subsequent price development (11 K 1833/10).

Hess + Blank represented the plaintiff in this financial court proceeding. The plaintiff, a securities trading firm, had acquired options based on the German stock market index DAX. When the option prices fell, the plaintiff wrote their tax account values down to the market prices on the balance sheet date. The options were sold at higher market prices shortly after the balance sheet date. The German fiscal authorities, relying on administrative directives of the German Federal Ministry of Finance, claimed that write-offs were only admissible to the higher market prices at the time of sale.

The Court followed Hess + Blank's line of argumentation and ruled that two 2011 decisions of the German Supreme Tax Court (BFH) regarding write-offs of non-current assets should be applied to write-offs on current assets. In these two 2011 decisions, the Supreme Tax Court had ruled in the context of non-current assets, that the market price on the balance sheet date was the only relevant criterion for a write-down and that any subsequent price developments were simply irrelevant (Sept. 21, 2011 - I R 89/10 und I R 7/11). By applying this concept to current assets, the Tax Court in Kassel closed a gap not previously covered by German case law.

Contrary to Draft Administrative Directive
The decision is distinctively newsworthy, because it directly contradicts the latest draft administrative directive on write-downs of the German Federal Ministry of Finance, issued only recently on January 17, 2014.

The decision is good news for commercial securities trading firms and proprietary trading groups in banks and insurance companies doing business in Germany. The decision is not final and binding yet, as the fiscal authorities may file an appeal and take the case to the German Supreme Tax Court (HB180314INW).

About Hess + Blank
Hess + Blank is a tax and law firm based in Frankfurt, Germany. It frequently represents securities trading firms (from day traders to international trading groups) in their German tax, accounting and legal affairs.

Hess + Blank
Christian R. Dörre, LL.M.
Freiherr-vom-Stein-Str. 7
60323 Frankfurt am Main
Tel: +49-(0)69-174312

About Hess + Blank tax consultancy and law firm