The Lower Tax Court had to decide whether, after the acquisition of a partnership interest, the capitalized additional value of the partnership’s assets as shown in the supplementary tax balance sheet must be depreciated over the same remaining useful life as in the partnership’s tax balance sheet or whether a newly calculated – and thus longer – remaining useful life should be used (case reference: 8 K 323/05). The additional value in the supplementary tax balance sheet results from the excess of the purchase price that a newly entering partner into the partnership pays compared to its (tax) capital account.
In the case, the plaintiff, a German limited partnership that built and operated ships, applied the same pro rata depreciation method and term in the supplementary tax balance sheet as was applied in the partnership’s tax balance sheet.
The tax authorities took the position that the depreciation method for the additional value must correspond to the partnership balance sheet but that the depreciation term depended on the newly calculated useful life (treatment as if the underlying assets, i.e. the ships, were newly acquired by the new partner).
Basing its conclusion on the uniform (tax) accounting approach for partnerships, the Lower Tax Court ruled that the depreciation of an additional value in the supplementary tax balance sheet must correspond to the treatment in the partnership balance sheet. Thus, an additional value only qualifies as a correction item and not as a separate asset or element that could justify different depreciation methods or different remaining useful lives from those in the partnership balance sheet.
The Lower Tax Court also referred to previous decisions of the Federal Tax Court stipulating that correction items in negative supplementary tax balance sheets have to be dissolved and increased according to corresponding expenses and revenues in the partnership balance sheet.
The case is now pending before the Federal Tax Court (case reference: IV R 1/11).
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