Fourth Bureaucracy Relief Act (BEG IV)

Shortening of Retention Periods for Accounting Documents - Consequences for Annual Financial Statements

The Fourth Act to Relief Bureaucracy for Citizens, Businesses and the Administration (Fourth Bureaucracy Relief Act; BEG IV), published in the Federal Law Gazette (BGBl. 2024 I Nr. 323) on October 29, 2024, provides, among others, for a reduction in the retention periods for accounting documents from ten to eight years. To this end, section 257 (4) of the German Commercial Act (HGB) and the corresponding provisions in the German Fiscal Code (AO) and the German Value Added Tax Act (UStG) have been amended or revised. The new regulation is to be applied to all documents whose retention period has not yet expired one day before the law comes into force. This is planned for the first day of the quarter following the promulgation, and thus for January 1, 2025. For documents of taxpayers subject to the supervision of the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht), the shortening of the retention periods will only to apply with a delay of one year and thus from January 1, 2026.

By shortening the retention periods, the changes will also have an impact on the future preparation of annual financial statements. This is because costs for the retention of business documents as a public law obligation are to be shown in a provision in the commercial and tax balance sheet, which is to be valued in accordance with section 253 HGB. By shortening the retention period for accounting documents, the provision for the retention of business records is to be reduced accordingly.

On the one hand, the commercial balance sheet valuation forms the upper limit for the tax balance sheet provision for the retention of business records (see guideline 6.11 (3) sentence 1 of the German Income Tax Guidelines (EStR); German Federal Fiscal Court (BFH), judgement of November 20, 2019, case no. XI R 46/17). On the other hand, the tax authorities also permit a flat-rate calculation in addition to an individual calculation. In this case, the provision is calculated by multiplying the annual storage costs by a factor of 5.5 for a storage obligation of ten years; for a storage obligation of eight years, the factor would be 4.5 accordingly.

However, the bill does not provide for a reduction in the ten-year retention obligation for trading books, inventories and annual financial statements to eight years. In practice, however, accounting documents are regularly kept for just as long as annual financial statements - also in view of the different start date compared to annual financial statements. A shortening of the retention obligation for accounting documents only will therefore probably come to nothing. However, the amount of the provision is still to be reduced. This is because if documents are voluntarily kept for longer than required by law, there is no legal obligation and a provision cannot be recognized. The amount of the expenses eligible for the provision must then be determined according to the individual circumstances. If it is not possible or only possible with considerable effort to compile the documents stored in the individual case, the tax authorities allow a flat-rate deduction of 20 % of the total costs for documents that do not have to be archived.