How is the investment deduction amount settled?
The dissolution of the investment deduction amount has different effects in three possible scenarios:
(1) Actual costs match the projected investment costs:
If the projected investment costs match the actual costs, there are no profit effects in the financial year of acquisition or production when the maximum reduction in acquisition or production costs is utilised. The off-balance-sheet profit-increasing addition can be fully offset by the profit-reducing reduction of the acquisition or production costs of the invested asset.
(2) Actual costs are higher than the projected investment costs:
If the actual costs are higher than the projected investment costs, the maximum possible profit-reducing reduction of the assessment basis exceeds the investment deduction amount taken into account in a previous year. However, there is no profit-reducing expense for the difference, as the reduction of acquisition or production costs may not exceed the investment deduction amount actually claimed.
(3) Actual costs are lower than the projected investment costs:
If the actual costs are lower than the projected investment costs, the maximum investment deduction amount cannot be fully added back, as the addition is limited to 40 percent (up to 2019) or 50 percent (from 2020) of the (lower) investment costs. The remaining balance must be retrospectively recorded as profit-increasing in the original year after the investment period has expired. Interest on the tax demand is calculated at 0.5% per month from the 15th month after the original year (§ 7g para. 3 EStG).
Note: If investment deduction amounts were taken into account in 2017, they must be invested by 31.12.2020 at the latest - or they must be dissolved and interest applied. In many cases, such an investment is now not possible as planned due to the Corona crisis.
To avoid these negative effects and to increase the liquidity of companies, the deadline for investment deduction amounts, whose three-year investment period expires in 2020, is extended by one year to four years (§ 52 para. 16 EStG, inserted by the "Second Corona Tax Assistance Act" of 29.6.2020). This gives taxpayers who want to invest in 2020 but cannot do so due to the Corona crisis the opportunity to make the investment in 2021 without negative tax consequences (reversal, interest on the tax demand).
Currently, the investment periods according to § 7g EStG are being extended again: For investment deduction amounts whose three-year or four-year extended investment period expires in 2021, the investment period is extended by one year to four or five years. This means that if the deduction amount was created in 2017 or 2018, the investment period now ends on 31.12.2022 (§ 52 para. 16 sentence 4 EStG, amended by the "Act to Modernise Corporate Tax Law").
The investment periods according to § 7g EStG are being extended again: If the three-year or already extended investment periods expire in 2022, they will be extended by another year to four, five or six years (§ 52 para. 16 sentences 3, 4 EStG, amended by the "Fourth Corona Tax Assistance Act" of 19.6.2022).
