Tax losses carry forward

The LCF dialogue is used to administer and evaluate tax losses carry forward (keyword recoverability of deferred tax assets). Several LCF categories (or future tax advantages) can be selected, depending on tax law and legal form:

Tax losses carry forward corporate tax
Tax losses carry forward local tax
German Interest Capping Rule
Tax losses carry forward § 15a EStG \(has to be created in 'Master Data'\)
Tax Credits \(foreign countries only\)
Capital losses \(foreign countries only\)

The roll forward of tax losses carry forward is performed in the Rollforward LCF subdialogue. This subdialogue displays the gross amount of a tax loss carry forward and will be explained in detail later in this manual.

Gross amount
The Gross amount column contains losses carry forward from the current and previous periods. When the Show details checkbox is activated, expiration date can be specified. No deferred taxes are calculated for the gross amount.

Gross amount short/long term usable
The assessment of the future realisability of losses carry forward (recoverability check) is performed in the Gross amount short term usable and Gross amount long term usable columns. Short-term items have a time frame of 12 months. The gross amount can be divided into short- and long-term.
The gross amount usable serves as a tax base for calculation of deferred taxes. If the allocation is made to the expiration date, a usable amount has to be allocated to every year.
If there are no restrictions regarding the expiration date, the LCF can look like in the following figure: EUR 10,000,000 gross amount – thereof EUR 7,000,000 long-term usable.

Reassessment – gross amount (-)
LCF value adjustments should be entered with a '-' sign. Calculate tax base not tax effects.

Do not enter expiration date in the reassessment column. The allocation is done automatically according to data in the columns Gross amount short term usable and Gross amount long term usable.

Deferred tax rate current period
Tax rate used for calculation of LCF must be created by the user. A proposed value taken from the master data is displayed here (see the figure above: 15%). Please consider tax rates for different types of LCF (tax losses carry forward corporate tax or tax losses carry forward local tax).

Calculation of deferred taxes – 'Summary' dialogue
The usable LCF amount (here EUR 7,000,000) is multiplied by a tax base (here: 15%). This results in EUR 1,050,000 of deferred taxes. In addition, reassessment of EUR 1,000,000 (EUR (-150.000 tax effect) has to be taken into account. Calculation steps are summarised in the Summary dialogue:

Subdialogue 'Rollforward LCF'
The subdialogue Rollforward LCF can be opened from the LCF dialogue: This subdialogue displays opening balance of the fiscal year per LCF type.

Amount prior period
An amount prior period taken from the prior period defined in the GTC is displayed in this column. It serves a starting point for further calculations.
Adjustments prior period
Adjustments of prior period can result from true-up effects. If a true-up period was created in the GTC, an adjustment amount calculated on this basis is displayed as a proposed value. This column can also be used for manual adjustments of the prior period. TRR reconciliation items result from adjustments prior period.
Utilisation / addition current period
The column is linked to the tax detail dialogues and cannot be edited.

Inland (German tax law)

Dialogue 'Current Taxes'

Corporate tax:
row 28 (column 'Total')

Local income tax:
row 37 (column 'Total')

Dialogue 'Current Taxes'

Corporate tax:
row 43.2 (column 'Total')

Local income tax:
row 38.2 (column 'Total')

Dialogue 'Current Taxes'

Corporate tax:
row 28 (column 'Total')

Local income tax:
row 37 (column 'Total')

Foreign countries

Dialogue 'Current Taxes'
Corporate tax:
row 12 (column 'Corporate Tax')

Local income tax:
row 12 (column 'Local Tax')

Dialogue 'Current Taxes'

Corporate tax:
row 13 (column 'Corporate Tax')

Local income tax:
row 13 (column 'Local Tax')

No proposed values are displayed for the members of tax group. Utilisation and addition of LCF is carried out on the parent company level.

Expiry and other adjustments current period
This column can be used for manual entry of adjustments for the current business year (the cell where the tax law provides expiry of tax LCF).

Current period
The current period value is calculated automatically. The value in the LCF dialogue per type of loss is forwarded to the Gross Amount column (row unlimited).

Theoretical background: 'LCF' dialogue tips
Deferred taxes in accordance with IAS 12 are recognised only when the requirements IAS 12.24 and IAS 12.34 are fulfilled. Recoverability check must be carried out for every balance sheet due date.
When checking recoverability of LCF according to IAS 12 it is necessary to distinguish between Loses without recognition of deferred taxes and Recoverability. Loses without recognition of deferred taxes are considered only if there are LCF in the reporting period. A reassessment is carried out if LCF that come with the deferred tax are classified as non-recoverable.
The situation is different for US GAAP (SFAS 109): deferred tax assets are recognised on LCF and reassessment is carried out only in a second step. This also applies to LCF that appear in the current period. Both approaches can be realised in the GTC.
Loses without recognition of deferred taxes
This criterion is applied to LCF that arise in the current reporting period. The assessment whether deferred taxes should be calculated for such losses has to be carried out in the year of their appearance.

If a LCF is fully recoverable, there is no TRR reconciliation item.

Valuation allowance of deferred tax assets
Valuation allowance applies to deferred tax assets (acc. to IAS 12) that appeared in the previous reporting periods. Valuation allowance for losses in the current period are not considered here (unlike US GAAP).