Back Taxes Payable By German Banks Due To Taxation Of Option Premiums On Cash Basis?

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Back Taxes Payable By German Banks Due To Taxation Of Option Premiums On Cash Basis?

Originally published in September 2001

The taxation of premiums for written options is at issue now for more than five years. Banks and fiscal authorities take a different view. Whereas banks request, that the taxation should be in conformity with German GAAP, the fiscal authorities insist on taxation on cash basis. A Lower Fiscal Court decision of 28 November 2000 confirms the view of the fiscal authorities but has been appealed. A further court case is pending. The following article outlines the issue, the background and the impact on the taxation of German banks as well as the next steps.

The issue

The issue is due to a mismatch of a long standing accounting treatment under German GAAP of option premiums received by banks and of taxation rules proposed by the fiscal authorities first time in 1996 based on the "Dual Contract Theorem" applied by the Federal Fiscal Court to private option transactions. The comments below first outline the German GAAP applicable to option premiums and thereafter the taxation rules.

Accounting for option premiums under German GAAP

Option premiums received by banks when writing options are considered under German GAAP as ...

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