14.07.2008
Germany’s Upper House, the Bundesrat, is still not satisfied with German Accounting Law Modernisation Act (BilMoG) bill
The Bundesrat debated the German Accounting Law Modernisation Act (BilMoG) bill on 04.07.2008 and has presented its comments. Surprisingly, it has called for a further examination of a number of points.
The Bundesrat debated the German Accounting Law Modernisation Act (BilMoG) bill on 04.07.2008 and has decided that several changes and further examination are necessary. In addition, a change to § 6a EstG, which regulates the valuation of pension accruals for tax statements, is being considered, which would allow companies to only submit an actuarial report on the level of pension accruals for the balance sheet and tax statement.
The following points are interesting for the area of company pensions:
1. Discounting of pension liabilities with the current market interest rate
In the version agreed by the federal cabinet, liabilities with a duration of more than one year are to be disounted using with the average market interest rate set by the Bundesbank over the previous seven years, taking the remaining time to maturity of the accruals or corresponding assets.
Deviating from the basic principle of separate valuation, it will be possible to discount accruals for current or future pensions across the board with an average interest rate, typically resulting from a given duration of 15 years.
The Bundesrat would prefer to deviate more from this average regulation. It has asked for an investigation on whether the market interest rate on the cut-off date should be applied to the discounting of accruals rather than the average market interest rate.
It is the Bundesrat’s opinion that the information content would be increased for the receiver of the financial statement and the valuation of pension accruals would be more efficient. It would then also be possible for companies to use the interest rates according to international financial accounting, therefore working with standardised interest rates.
2. Is an adjustment of § 6a EStG to be expected?
The Bundesrat has also asked for an examination on the possiblity of valuating pension accruals for tax statements according to § 6a EstG, to correspond with the valuations in line with BilMoG. In this way, it is hoped that tax revenue will remain the same.
This would be welcomed in principle by the companies affected, as it has been the practice until now to determine pension liabilities for the balance sheet and the tax statement according to a standard procedure defined in § 6a EstG. This was administratively practical and avoided additional bureaucratic costs.
The changes to the valuation of accruals envisaged in the German Accounting Law Modernisation Act (BilMoG) would mean double valuation: once for the balance sheet, once for the tax statement. This would result in more bureaucratic work and costs and should therefore be avoided. The current tax revenues must, however, be guaranteed.
Conclusion:
The Bundesrat has asked for several points to be examined, posing the question as to whether the bill will be ready to be passed in the autumn, as intended.