Bilanzrechtsmodernisierungsgesetz

The German government recently issued its draft law concerning the modernisation of company annual accounts. The Bilanzrechtsmodernisierungsgesetz implements the EU Directive 2006/43/EC into national German law and also updates the rules on drawing up company balance sheets found in the German Commercial Code (Handelsgesetzbuch).

For particular interest to IP practitioners are the changes to Sec 248. Paragraph 2 currently reads that a value for intellectual property developed by a company cannot be entered onto the balance sheet. IP acquired from another entity can be placed on the balance sheet.

The new law proposes to bring the German practice closer to IFRS regulations. Paragraph 2 will be deleted completely. The memorandum attached to the draft law states that this means that due to the requirements of Sec 246 there will in future be a requirement to include a value for intellectual property in the balance sheet as long as this item of property can be separately commercialised, for example by sale or by use.

An amendment to Sec 255, Paragraph 4, states that the value assigned is that of the market value - but if none is available then generally acceptable accounting rules can be used. If no possible value can be drawn up then the value assigned will be that of the development costs for the item of intellectual property (but note that research costs are not included as these are considered to be general costs - and not linked to the development of the intellectual property). The memorandum states that it is "recht einfach" (i.e. easy) to make the distinction between research and development costs - however in practice this is likely to be much more difficult than it seems at first glance.

The rules for drawing up the balance sheet listed in Sec 266 are amended to include an item for self-created intellectual property.

Finally in order to protect creditors the new law also incorporates a provision (Sec 268 Paragraph 8) which states that a dividend can only be paid to shareholders when suffcient funds are retained by the company to cover the value of the intellectual property listed in the accounts.

The draft law is currently out for consultation. There seems to have been little debate about these provisions and they will certainly be welcomed, for example, in the venture capital industry where investments are made into innovative companies whose sole assets are intellectual property rights.