Excess income statement: Temporal allocation of regularly recurring income and expenses

November 28, 2022

If the taxable profit is determined by means of a net income statement, as is the case in particular with smaller traders or freelancers, income and expenses are generally recorded at the time of inflow or outflow. However, in order to avoid coincidental results, there is a special rule in this respect: Regularly recurring income that is received shortly before the beginning or shortly after the end of the calendar year (Kj.) to which it economically belongs is not recorded in the year of receipt, but in the year to which it economically belongs. A period of up to ten days is considered a “short period”. The same applies to expenses. If, for example, the rent for the business premises for the month of January 2023, which is to be paid by the third working day in January 2023, is already transferred on December 30, 2022, this expenditure will be allocated to the year 2023 for tax purposes in accordance with the special regulation.

The FinVerw and also the predominant opinion in the literature assume that this special regulation applies restrictively only to such incomes or expenditures, which were not only paid, but also became due short time before beginning and/or short time after end of the calendar year of the economic affiliation. However, this characteristic of maturity is not mentioned in the law, so this was disputed. Now the BFH has clarified this issue. In the case of the ruling, a trader who determined profit by means of a surplus income statement did not make the advance VAT payments for the advance return periods May to July 2017 until Jan. 9, 2018, but claimed them as operating expenses for the disputed year 2017.

The BFH now contradicted this approach in a decision dated Feb. 16, 2022 (Case No. X R 2/21). The court clarifies that the special provision of Section 11 (2) sentence 2 EStG on the timing of regularly recurring income and expenses requires that they have not only been paid but also become due shortly before the beginning or shortly after the end of the financial year of the economic affiliation. It is true that, according to now established case law, advance sales tax payments are regularly recurring expenses in view of their statutory repetition. However, it is required that the expenditure in question has also become due within the ten-day period before the beginning or after the end of the financial year of the economic affiliation. The BFH justified this by stating that the provision, which is to be narrowly limited in its scope of application, is intended to avoid coincidental results, which would occur, however, if every expense (or income) due at any time during the financial year were still attributed to that financial year even if it was not paid until shortly after the beginning of the following calendar year. A waiver of the due date would amount to a transfer of the principles applicable to the preparation of the balance sheet to the surplus income statement and thus considerably exceed its meaning and purpose.

Recommendation for action: The correct chronological allocation of income and expenses can be of procedural importance if it turns out that expenses were claimed in the “wrong” year and recognition in the other “correct” year is only possible if this can still be changed under procedural law. In this respect, the allocation of income and expenses around the turn of the year should be carried out very carefully.