Deferred Taxes

Deferred taxes under HGB: latente Steuern and § 274

Deferred taxes (latente Steuern) arise because the HGB commercial balance sheet and the tax balance sheet value things differently. This page explains the temporary-difference concept under § 274 HGB, the recognition duty for net liabilities and the option for net assets, the small-entity relief in § 274a, and how the HGB treatment compares with IFRS.

Why deferred taxes exist

A company keeps two balance sheets: the commercial one under HGB (Handelsbilanz) and the tax one under the EStG (Steuerbilanz). When an asset or liability is carried at a different amount in each, and that difference will reverse in a later period, the tax the company will eventually pay does not match the tax expense implied by its commercial profit. Deferred taxes bridge that gap so the GuV shows a tax charge consistent with the commercial result.

Since the 2010 reform (BilMoG), § 274 HGB follows a balance-sheet, temporary-difference approach (das bilanzorientierte Konzept): you compare each item's HGB carrying amount with its tax base and multiply the reversing differences by the company's tax rate.

Recognition: duty versus option

Deferred tax liabilities

A net excess of taxable temporary differences (passive latente Steuern) must always be recognised. § 274 gives no choice here — the future tax burden has to appear on the balance sheet.

Deferred tax assets

A net excess of deductible temporary differences (aktive latente Steuern) may be recognised, but need not be. § 274 Abs. 1 Satz 2 grants an option to capitalise the net asset overhang or to leave it off.

Gross or net

A company may offset deferred tax assets and liabilities and show the net figure, or present them gross. Whichever it picks, the amounts are measured at the company-specific tax rate and are not discounted (§ 274 Abs. 2).

What creates the differences

  • Different depreciation methods or useful lives between the Handelsbilanz and Steuerbilanz.
  • Provisions recognised or measured differently for commercial and tax purposes — pensions are a frequent source.
  • Internally generated intangibles capitalised under HGB but not deductible as capitalised for tax.
  • Tax loss carryforwards the company expects to use within the next five years, which may feed a deferred tax asset.

The distribution block

If a company capitalises a net deferred tax asset, HGB does not let that unrealised benefit leak out as a dividend. § 268 Abs. 8 HGB imposes a distribution block (Ausschüttungssperre): profit is only distributable to the extent that freely available reserves plus profit carried forward, after deducting the capitalised net deferred tax asset, still cover the payout.

This keeps the creditor-protection logic intact — you may recognise the asset to give a truer commercial picture, but you may not treat a paper tax benefit as distributable cash.

Small-entity relief and IFRS

Small and micro corporations are largely spared this exercise. § 274a Nr. 4 HGB exempts small companies from the deferred-tax rules of § 274 altogether, so in practice only medium-sized and large entities routinely recognise deferred taxes on their commercial balance sheet.

IFRS (IAS 12) uses the same temporary-difference approach but is stricter about the asset side: a deferred tax asset must be recognised to the extent its use is probable, with no free option. Neither framework discounts deferred taxes. The result is that the balance-sheet mechanics look similar, but HGB's recognition option and small-entity relief give German single-entity accounts a lighter footprint.

Frequently asked questions

What are latente Steuern in German accounting?

Latente Steuern are deferred taxes — the tax effect of temporary differences between an item's value in the commercial HGB balance sheet and its value in the tax balance sheet. Under § 274 HGB these differences are multiplied by the company's tax rate to align the reported tax expense with the commercial result.

Do you have to recognise deferred tax assets under HGB?

No. § 274 Abs. 1 Satz 2 HGB gives an option: a net excess of deferred tax assets may be capitalised but does not have to be. A net excess of deferred tax liabilities, by contrast, must always be recognised. This asymmetry reflects HGB's prudence orientation.

Are small companies exempt from deferred taxes?

Largely yes. § 274a Nr. 4 HGB relieves small corporations from the deferred-tax rules of § 274, and micro entities are outside its scope too. In practice only medium-sized and large companies routinely account for deferred taxes on their HGB balance sheet.

How do HGB and IFRS differ on deferred taxes?

Both use the temporary-difference (balance-sheet) approach and neither discounts. The key difference is on the asset side: IFRS (IAS 12) requires recognition of a deferred tax asset to the extent its use is probable, while HGB gives an option to capitalise the net asset overhang. HGB also exempts small entities entirely.

What is the distribution block on deferred tax assets?

Under § 268 Abs. 8 HGB, any capitalised net deferred tax asset is subject to a distribution block (Ausschüttungssperre). Profit may only be distributed to the extent freely available reserves cover the payout after deducting that asset, so an unrealised tax benefit cannot be paid out as a dividend.