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Reserve Depreciation for Software on a CD Creating a Tax Loss

An IT engineer was planning to buy a CD with system software in a local department store and following the rules of depreciation, he wanted to deduct these costs in advance. The BFH (judgment of May 18, 2011, re X R 26/09, published on August 31, 2011) a final answer to this idea.

A system engineer declared a tax loss for his business by creating a "reserve depreciation (Ansparabschreibung)". Pursuant to ยง7g III EStG persons can write off planed investments in advance. The tax office however denied this idea because software is an immaterial economical good and such goods are not eligible for such artificial depreciation. The lower tax court agreed with the engineer.

The Federal Tax Court scraped that judgment of the lower court and agreed with the tax office. Computer programs, when saved on a CD, consist of material and immaterial elements. Since the CD ROM is comparable to a gift wrapping to the software the immaterial element prevails. It is only a medium to transport software. As the statute clear says immaterial goods are not eligible for a reserve depreciation.