CELEX: 61999CJ0306
Fourth Directive 78/660/EEC
Annual accounts of certain types of companies
Jurisdiction of the Court to interpret Community law in a context where it is not directly applicable
Provisions for risk under a loan guarantee
Taking into account of the individual situation of the debtor and of its State of establishment
Date on which the risk may or must be evaluated and entered on the balance sheet

By order of 29 April 1999, received at the Court on 13 August 1999, the Finanzgericht Hamburg (Finance Court, Hamburg) referred
to the Court for a preliminary ruling under Article 234 EC a series of questions on the interpretation of the Fourth Council
Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies
(OJ 1978 L 222, p. 11;
the Fourth Directive).
Those questions were raised in proceedings between the Banque Internationale pour l'Afrique Occidentale SA (
BIAO), a bank incorporated under French law, and the Finanzamt für Großunternehmen (Tax office for large undertakings) in Hamburg
(
the Finanzamt).
At the time of the facts in the main proceedings, BIAO, which is established in Paris (France), had a subsidiary in Hamburg
acting as a credit institution under the name of BIAO-Africa Bank Niederlassung Hamburg (
BIAO-Afribank).  The latter was not legally autonomous and was not in the nature of a capital company.  It specialised in loans in developing
countries and drew up its balance sheet in that sector.
The dispute concerns the amount of trade tax due from BIAO-Afribank for the 1989 financial year.  That amount depends upon
the correct valuation of a provision for possible losses arising from operations current at the balance-sheet date, namely
31 December 1989.
Legal background
Community legislation
According to the first recital in its preamble, the Fourth Directive is intended to coordinate national provisions concerning,
in particular, the presentation and content of annual accounts and annual reports, the valuation methods used therein and
their publication, for the purposes of protecting members and third parties.
To that end, the Fourth Directive is subdivided into a number of distinct sections relating both to the manner of presenting
annual accounts and to the content and valuation of the items concerned.  So far as relevant in this case, Sections 1 and
2 lay down general provisions concerning annual accounts, Section 3 concerns the structure and presentation of the balance
sheet, and Section 4 sets out the purposes and the content of certain balance-sheet items.  Section 7 specifies the rules
for valuing items appearing in the annual accounts.
Under Article 1 of the Fourth Directive, as it stood at the time of the facts in the main proceedings, the coordination measures
prescribed by that directive applied in particular to the laws, regulations and administrative provisions of the Federal Republic
of Germany concerning the public company limited by shares (
Aktiengesellschaft), the
Kommanditgesellschaft auf Aktien (a form of public company whose directors are personally liable for the company's debts), and the private company limited
by shares (
Gesellschaft mit beschränkter Haftung).
By virtue of directives subsequent to the Fourth Directive, certain provisions of the latter ─ particularly those requiring
publication of accounting documents ─ currently apply, first, to banks and other financial establishments and their subsidiaries,
and, secondly, to German subsidiaries of companies registered in other Member States.  At the time of the facts in the main
proceedings, however, the Federal Republic of Germany was not required to apply the provisions of the Fourth Directive to
traders other than those referred to in Article 1 thereof.
Article 2(3) of the Fourth Directive, which appears in Section 1 thereof, provides: The annual accounts shall give a true and fair view of the company's assets, liabilities, financial position and profit or
loss.
Article 2(4) of the Fourth Directive provides that
[w]here the application of the provisions of this Directive would not be sufficient to give a true and fair view within the
meaning of paragraph 3, additional information must be given.
Under Article 2(5) of that directive: Where in exceptional cases the application of a provision of this Directive is incompatible with the obligation laid down
in paragraph 3, that provision must be departed from in order to give a true and fair view within the meaning of paragraph
3. Any such departure must be disclosed in the notes on the accounts together with an explanation of the reasons for it and
a statement of its effect on the assets, liabilities, financial position and profit or loss. The Member States may define
the exceptional cases in question and lay down the relevant special rules.
Section 3 of the Fourth Directive establishes two compulsory layouts for the presentation of balance-sheet items.  As regards
the presentation of commitments by way of guarantee, Article 14, which also appears in Section 3, states: All commitments by way of guarantee of any kind must, if there is no obligation to show them as liabilities, be clearly set
out at the foot of the balance sheet or in the notes on the accounts, and a distinction made between the various types of
guarantee which national law recognises; specific disclosure must be made of any valuable security which has been provided.
Commitments of this kind existing in respect of affiliated undertakings must be shown separately.
Section 4 of the Fourth Directive lays down special provisions relating to certain balance-sheet items.  Concerning individual
assets, Article 19 in Section 4 provides: Value adjustments shall comprise all adjustments intended to take account of reductions in the values of individual assets
established at the balance-sheet date whether that reduction is final or not.
Article 20(1) of the Fourth Directive, which also appears in Section 4, refers to provisions and is worded as follows: Provisions for liabilities and charges are intended to cover losses or debts the nature of which is clearly defined and which
at the date of the balance sheet are either likely to be incurred, or certain to be incurred but uncertain as to amount or
as to the date on which they will arise.
Under Article 31 of the Fourth Directive, which appears in Section 7, headed
Valuation rules:
1.
The Member States shall ensure that the items shown in the annual accounts are valued in accordance with the following general
principles:
(a)
the company must be presumed to be carrying on its business as a going concern;
(b)
the methods of valuation must be applied consistently from one financial year to another;
(c)
valuation must be made on a prudent basis, and in particular:
(aa)
only profits made at the balance-sheet date may be included;
(bb)
account must be taken of all foreseeable liabilities and potential losses arising in the course of the financial year concerned
or of a previous one, even if such liabilities or losses become apparent only between the date of the balance sheet and the
date on which it is drawn up;
(cc)
account must be taken of all depreciation, whether the result of the financial year is a loss or a profit;
(d)
account must be taken of income and charges relating to the financial year, irrespective of the date of receipt or payment
of such income or charges;
(e)
the components of asset and liability items must be valued separately;
(f)
the opening balance sheet for each financial year must correspond to the closing balance sheet for the preceding financial
year.
2.
Departures from these general principles shall be permitted in exceptional cases. Any such departures must be disclosed in
the notes on the accounts and the reasons for them given together with an assessment of their effect on the assets, liabilities,
financial position and profit or loss.
In relation to value adjustments, Article 39(1)(b) and (c) of the Fourth Directive, which also appear in Section 7, provide:
(b)
Value adjustments shall be made in respect of current assets with a view to showing them at the lower market value or, in
particular circumstances, another lower value to be attributed to them at the balance-sheet date.
(c)
The Member States may permit exceptional value adjustments where, on the basis of a reasonable commercial assessment, these
are necessary if the valuation of these items is not to be modified in the near future because of fluctuations in value. The
amount of these value adjustments must be disclosed separately in the profit and loss account or in the notes on the accounts.
Under Article 42 of the Fourth Directive, which appears in Section 7: Provisions for liabilities and charges may not exceed in amount the sums which are necessary.The provisions shown in the balance sheet under
Other provisions must be disclosed in the notes on the accounts if they are material.
National legislation
Transposition of the Fourth Directive
The Fourth Directive was transposed into German law by the Bilanzrichtliniengesetz (Accounting Directives Law) of 19 December
1985 (BGBl. 1985 I, p. 2355).  That Law was subsequently incorporated into Book III of the Handelsgesetzbuch (German Commercial
Code) of 10 May 1897 (BGBl. 1987 III, p. 4100-1;
the HGB).
In its order for reference, the Finanzgericht Hamburg states that, in transposing the Fourth Directive, the German legislature
decided to apply its rules not only to the capital companies referred to in Article 1 of the directive, but more generally
to all traders, including subsidiaries of companies registered in other Member States.
Accordingly, certain features of the Fourth Directive were integrated into Book III, Section I, of the HGB, comprising Articles
238 to 263, concerning the provisions common to all traders.  The specific provisions applicable to capital companies appear
in Section II of the same book, comprising Articles 264 to 365. Provisions common to all traders (Book III, Section I, of the HGB)
Paragraph 238(1) of the HGB provides: Every trader shall keep accounts recording his business transactions and the state of his assets in accordance with the principles
of proper accounting.  The accounts must be such as to give an outside expert within a reasonable time an overview of the
situation of the undertaking. ...
Paragraph 239(2) of the HGB provides: The accounting entries and the other records required must be carried out in a complete, correct, timely and orderly manner.
According to Paragraph 242(1) of the HGB: A trader must at the start of his business and at the end of each trading year draw up accounts (opening balance, balance
sheet) showing his assets and his liabilities. ...
Paragraph 243(1) and (2) of the HGB provide:
(1)
The annual accounts must be drawn up in accordance with the principles of proper accounting.
(2)
They must be clear.
In the words of the first sentence of Paragraph 249(1) of the HGB: Provisions must be made for uncertain debts and risks of losses arising from current operations.
The first sentence of Paragraph 251 of the HGB is worded as follows: If there is no obligation to record them as liabilities, commitments arising from the issuing and transfer of bills, from
guarantees, from the backing of bills or cheques, from contracts of guarantee or from undertakings by way of security for
the commitments of others must appear at the foot of the balance sheet; ...
Paragraph 252(1), point 4, of the HGB provides: Valuation shall be done on a prudent basis, taking account in particular of all risks and foreseeable losses arising before
the date of the balance sheet, even if they became apparent only between the date of the balance sheet and the date on which
it is drawn up; only profits made at the balance-sheet date may be taken into account.
The second sentence of Paragraph 253(1) of the HGB reads: Debts must be accounted for at their repayment value, pensions commitments ... at their current value, and provisions only
up to the amount necessary in accordance with a reasonable commercial assessment ...
Under Paragraph 268(7) of the HGB: The commitments listed in Paragraph 251 must be mentioned separately at the foot of the balance sheet or in the notes to the
accounts ...
The referring court observes that Section I of Book III of the HGB has not adopted
verbatim
the
true and fair view principle set out in Article 2(3) of the Fourth Directive (see paragraph 9 of this judgment).  However, it considers that
the provisions common to all traders must be understood in a manner consistent with that principle by virtue of the obligation
to give a correct picture of the assets and liabilities contained in Paragraphs 239 and 242(1) of the HGB.
Specific provisions applicable to capital companies
Unlike the provisions of Section I of Book III of the HGB, the provisions applicable to capital companies expressly adopt
the
true and fair view principle contained in Article 2(3) of the Fourth Directive.  Accordingly, Paragraph 264(1) and (2) of the HGB provide:
(1)
The legal representatives of capital companies must supplement the annual accounts (Paragraph 242) with notes that form a
unity with the balance sheet and the profit and loss account, and an annual report. ...
(2)
The annual accounts of capital companies must, observing the principles of proper accounting, give a
true and fair view of the company's assets, financial situation and profit or loss.  If particular circumstances have the result that the annual
accounts do not give a true and fair view within the meaning of the first sentence, then additional information is to be provided
in the notes on the accounts.
In addition, Article 289(1) of the HGB provides: In the annual report, at least the course of business and the situation of the capital company are to be presented in such
a way that a
true and fair view is given;  in addition, the risks of future developments must also be mentioned.
The tax rules concerning the drawing up of the balance sheet
According to the Körperschaftsteuergesetz (Corporation Tax Law) of 31 August 1976 (BGBl. 1976 I, p. 2597;
the KStG), tax on corporate earnings is determined on the basis of trading profits calculated pursuant to the Einkommensteuergesetz
(Income Tax Law) of 16 October 1934, as amended (BGBl. 1990 I, p. 1898, and BGBl. 1991 I, p. 808;
the EStG).  In accordance with the EStG, the assessment of profit is to be made on the basis of accounts drawn up pursuant to the
rules contained in the HGB.
The Finanzgericht Hamburg considers that, in the absence of higher-ranking special tax rules on the drawing up of the balance
sheet, it is the commercial-law
principles of proper accounting which apply, in accordance with the first sentence of Paragraph 5(1) of the EStG, which is worded as follows: Traders who are legally required to keep accounting records and regularly draw up accounts or who keep accounting records
and regularly draw up accounts although not so required shall at the end of the trading year evaluate the assets ... in accordance
with the commercial-law principles of proper accounting.
According to the referring court, the principles of proper accounting apply not only to tax on the income of natural persons
but also to the basis for assessing tax on capital companies by reason of the reference to the EStG appearing in Paragraph
8(1) of the KStG, which provides: What constitutes income and how it is to be calculated shall be determined in accordance with the provisions of the Einkommensteuergesetz
and of the present law.
The principles of proper accounting also apply to the determination of trade tax ─ the subject-matter of the present dispute
─ according to Paragraph 7 of the Gewerbesteuergesetz (Trade tax law) of 1 December 1936 (RGBl. 1936 I, p. 979;
the GewStG) in the following terms: Trading profit is the profit, determined in accordance with the provisions of the Einkommensteuergesetz or the Körperschaftsteuergesetz,
of a business, which is to be taken into account in calculating the income for the ... period of assessment ...
Those provisions show that the reference to the
principles of proper accounting in the first sentence of Paragraph 5(1) of the EStG is of general application, and therefore applies to capital companies.
Those principles include the procedural and substantive requirements applicable to annual accounts, as well as the provisions
on posting and valuation, codified in Book III, Section I of the HGB (including, in particular, the first sentence of Paragraph
238(1) and Paragraph 243(1)) and binding on all traders.
The principles of proper accounting also apply to the making of provisions.  However, the referring court states that German
legislation on the accounting treatment of provisions makes a distinction between provisions for losses and provisions for
debts.
As regards provisions for losses, the principles of proper accounting, applicable by virtue of the first sentence of Paragraph
5(1) of the EStG, include the principle set out in the second sentence of Paragraph 253(1) of the HGB and in Article 42 of
the Fourth Directive, according to which provisions must not exceed the amount which is necessary on the basis of a reasonable
commercial assessment.
Concerning the valuation of provisions for losses, by contrast, the EStG contains higher-ranking special tax rules which take
precedence over those in the first sentence of Paragraph 5(1) of the EStG.  More particularly, the Finanzgericht states that
German tax law refers indirectly to concepts or criteria concerning the drawing up of the balance sheet.  Essentially, those
rules require a reasonable commercial assessment.  According to that court, the case-law recognises that recourse must be
made in that context to the principles of proper accounting.
The requirements concerning the revaluation of provisions
According to the referring court, the first part of the sentence in point 4 of Paragraph 252(1) of the HGB corresponds to
the provision in Article 31(1)(c)(bb) of the Fourth Directive.  In accordance with the rule of prudent assessment, account
should be taken in particular of all foreseeable risks and losses which arose before the balance-sheet date and were known
about between that date and the date on which the annual accounts were drawn up.
The court adds that revaluation of a provision forms part of the principles of proper accounting and is therefore also applicable
in tax matters by virtue of Paragraph 5(1) of the EStG.
Under German tax law, the decisive period is the proper period for drawing up the commercial balance sheet, not the date of
any later tax balance sheet.  Revaluation also applies in the valuation of debts or loans and in the case of a globally ascertained
value adjustment or a loan-risk provision.
However, according to International Accounting Standard (IAS) No 10, facts coming to light after the balance-sheet date and
before the drawing up of the accounts are to be taken into account if they reveal circumstances which already existed on that
balance-sheet date.
Background to the dispute in the main proceedings
The parties are in dispute over the valuation of a provision for potential losses arising from sub-participation by BIAO-Afribank
in the risks of non-repayment of an eight-figure loan granted by the New York subsidiary of Berliner Handels- und Frankfurter
Bank KGaA (
BHF Bank) to a Chilean State-owned mining company,
Corporación del Cobre).
Sub-participation in foreign loan risks
On 5 and 7 March 1987, BHF Bank signed a framework contract with Corporación del Cobre concerning an unsecured line of credit
for ensuring the revolving pre-financing of exports of copper to purchasers in Germany.  The framework contract was supplemented
by successive short-term loans and remained in existence during the entire period of the lending commitment, that is until
1994.
For the repayment of the loan, customers of Corporación del Cobre paid sums for the purchase of copper into its account at
the New York branch of BHF Bank.  In compliance with Chilean legislation, those sums were then to be transferred to Chile,
where the Chilean Central Bank had to make the necessary foreign currency available to Corporación del Cobre when the loans
were due.
BHF Bank distributed part of the risk arising from that lending to other credit institutions.  On 31 March 1987, both BIAO
and BIAO-Afribank concluded a participation agreement, providing for a proportionate guarantee in the event of default by
Corporación del Cobre.
The sub-participations were extended on several occasions in line with the amount and the term of the loans granted by BHF
Bank to the Corporación del Cobre to finance its exports.  There were never any delays in payment by the latter.
The sub-participation at issue in this case, relating to the balance-sheet date for 1989, arises from an offer made on 1 July
1989 by BHF Bank to BIAO and BIAO-Afribank.  By accepting that offer on 7 August 1989, the latter both agreed to participate
to the extent of USD 1.5 million each (making a total of USD 3 million) in the risk incurred by BHF Bank, valued at a maximum
of USD 30 million, arising from a loan which it had granted to Corporación del Cobre.  (Such an undertaking is described as
a
risk sub-participation agreement).  The guarantee fee amounted to 7/8% per annum of the loan amount outstanding under the sub-participation.  It was payable
in arrears if no default occurred.
The Corporación del Cobre repaid the two partial loan amounts requested in 1989 to BHF Bank within the time allowed.  BHF
Bank transferred to the New York branch of BIAO guarantee fees totalling USD 8 750 on 8 February and of USD 4 350 shortly
after 27 April 1990, that is to say after the balance-sheet date of BIAO-Afribank for 1989.
Balance-sheet treatment of the sub-participation
The 1989 balance sheet of BIAO-Afribank was prepared and the various items on that balance sheet audited before the balance-sheet
date of 31 December 1989, at a time when the sub-participation relating to that financial year was not yet repaid.  On 20
November 1989, the sub-participation was submitted for preliminary auditing at the same time as the documents relating to
the loan and figures from the balance sheet of Corporación del Cobre, production of those items being required by German legislation.
On 23 March 1990, the annual accounts were drawn up and signed within the time-limits laid down by the Kreditwesengesetz (Banking
and Financial Dealings Law).  The sub-participation ─ totalling around DEM 2.55 million ─ corresponded to 6% of BIAO-Afribank's
balance-sheet total (of around DEM 42.45 million) and 3.5% of its total lending risk including contingent liabilities noted
as off-balance-sheet items (totalling around DEM 72.33 million).
BIAO-Afribank entered as such in its 1989 balance sheet the risk sub-participation guarantee to BHF Bank in respect of the
loan granted to Corporación del Cobre at the foot of the balance sheet on the liabilities side (
unter dem Bilanzstrich auf der Passifseite), as a commitment by way of guarantee within the meaning of Article 14 of the Fourth Directive.
At the same time, it entered on the liabilities side of the balance sheet, as a
country risk for Chile, a provision for possible losses arising from current operations, as envisaged by Article 20(1) of the Fourth Directive
and the first sentence of Paragraph 249(1) of the HGB.
In order to do that, BIAO-Afribank had recourse to an individual assessment of the risks presented by Chile in the light of
its political and economic situation, using a points table developed by its auditors on the basis of the index known as
Institutional Investor's Country Ratings.
The points thus obtained, rounded up to the nearest whole 10, were taken as the basis for calculating the rate of value adjustment
applicable to loans granted in the countries concerned.  It was by reference to that rate that an individual determination
was made, by country and by loan, as to whether or not it was necessary to adjust value or to make provisions for contingent
liabilities.
Despite good results by Corporación del Cobre in 1988, BIAO-Afribank felt obliged, when using that individual assessment,
to increase the
country risk by 5 points, fixing it at a total of 25.  In that respect, the main factors taken into account were the fall in copper
prices in 1989 and a threat of strikes in Chilean State copper mines, reported in the press on 10 November 1989.
Thus, DEM 638 000, around 25% of the sub-participation in the risk, amounting to around DEM 2.55 million (after conversion),
was allocated to provisions for losses.
In accordance with the method used by BIAO-Afribank, the global assessment of the value of the loans resulted from the combined
assessment, first, of the amounts corresponding to the value adjustments and the provisions relating to each of the loans
of the various countries using the adjustment rates applicable for
country risk and, second, insolvency risks for certain internal loans.  Since, in the main proceedings, the solvency of Corporación
del Cobre was not in any doubt, it was not necessary to take a specific insolvency risk into account.
It was, however, necessary to constitute, in addition to the provision for possible losses on account of
country risk, a global provision on account of the latent risk in lending.  That global provision, based on the average rate of default
recorded by BIAO in the past, converted into a value adjustment rate, amounted to 0.42% for guarantees with an average residual
term of six months.
However, the global value adjustment for insolvency was no longer related to the total amount, but only to the amount reduced
by the individual value adjustments.
The dispute in the main proceedings and the questions referred for a preliminary ruling
The dispute in the main proceedings, concerning the valuation of the provision for possible losses resulting from BIAO-Afribank's
sub-participation in the risk of non-repayment of the loan granted to Corporación del Cobre, is relevant only to trade tax.
After an external check carried out by the eventual purchaser of BIAO in 1993, the disputed provision was no longer accepted
by the Finanzamt für Körperschaften Hamburg-West (Hamburg-West tax office for corporations)(
the Finanzamt Hamburg-West), which at that time had competence in the matter of trade tax.  In its view, showing the off-balance-sheet transaction under
liabilities was possible, as in the case of a surety, only if there was a serious likelihood of recourse being had to the
surety because of the anticipated insolvency of the principal debtor.
Therefore, given that Paragraph 10a of the GewStG does not permit the loss which was recognised for tax purposes for 1990
to be carried back, the Finanzamt Hamburg-West raised the basis of assessment and the amount of trade tax by decision of 10
November 1993.
On 19 November 1993, BIAO lodged an objection to that decision.  Following the dismissal of the objection by a decision of
the Finanzamt Hamburg-West of 18 December 1996, it brought an action before the Finanzgericht Hamburg claiming that the decision
of 10 November 1993 should be amended so as to take the
country risk for Chile into account and that the basis of assessment and the amount of trade tax due for the financial year in question
should be reduced in consequence.
The Finanzamt, which acquired competence with respect to BIAO during the national court proceedings, contended as defendant
that the action should be dismissed on the ground that interpretation of the Fourth Directive is not decisive for the application
of the national rules on the taxation of earnings.
In those circumstances, the Finanzgericht Hamburg decided to stay proceedings and refer the following questions to the Court
for a preliminary ruling:
I.
Jurisdiction of the Court of Justice to give a preliminary ruling
Does the Court of Justice have jurisdiction in the procedure for preliminary rulings under Article 177 of the EC Treaty (old
version) (Article 234 EC in the version in force from 1 May 1999 under the Treaty of Amsterdam of 2 October 1997 (new version))
to interpret the Fourth Council Directive 78/660/EEC of 25 July 1978 on the annual accounts of certain types of companies
(OJ 1978 L 222, p. 11,
the Directive) not only where there is doubt as to the application in conformity with the Directive of the national commercial law on accounts
of capital companies (in this case, Paragraph 264 et seq. of the German Handelsgesetzbuch (Commercial Code,
the HGB)), but also:
1.
where elements of the Directive were taken over when it was transposed into the national commercial accounting law applicable
to all traders (in this case Paragraph 238 et seq. of the HGB), even though for them the
true and fair view requirement set out in the preamble to and Article 2 of the Directive was not adopted in the wording of the legislation (unlike
in the case of capital companies, Paragraphs 264(2) and 289(1) of the HGB);
2.
where national tax law (in this case the first sentence of Paragraph 5(1) of the German Einkommensteuergesetz (Income Tax
Law,
the EStG) in conjunction with Paragraph 8(1) of the German Körperschaftsteuergesetz (Corporation Tax Law,
the KStG) and Paragraph 7 of the German Gewerbesteuergesetz (Trade Tax Law,
the GewStG)) assumes that the commercial-law principles of proper accounting are applicable for ascertaining the profits of traders
who draw up balance sheets, and
(a)
where these are regulated in the provisions for all traders (Paragraph 238 et seq. of the HGB) harmonised (by the Directive)
or
(b)
where the specific accounting provisions for capital companies (Paragraph 264 et seq. of the HGB) apply;
3.
where national tax law refers in another connection to concepts or criteria from commercial accounting law?
II.
Balance-sheet treatment of loan risks
1.
Where foreign loans have been granted, is a country risk (foreign currency risk or transfer risk) to be included in the balance
sheet as a value adjustment ─ on the
Assets side by means of writing down of foreign debts (Articles 19 and 39(1)(b) and (c) of the Directive, Paragraph 253(3) and (4)
of the HGB) ─ and on the
Liabilities side by means of provisions (Article 20(1) of the Directive, first sentence of Paragraph 249(1) of the HGB) for off-balance-sheet
contingent liabilities under guarantees for foreign debts due to third parties (Article 14 of the Directive, Paragraph 251
of the HGB;
risk sub-participation agreement)?
2.
Is it compatible with the requirement of separate valuation of balance sheet items (Article 31(1)(e) of the Directive, Paragraph
252(1)(3) of the HGB), instead of taking risks into account purely by individual value adjustments or provisions, alternatively
to take them into account by means of globalised value adjustments or provisions, even if a loan default is not preponderantly
probable in the individual case:
(a)
May a creditworthiness risk which is not acute but merely latent be covered by a global value adjustment, not only in the
form of writing down a debt but also by means of a provision for a contingent (guarantee) liability?
(b)
May a not preponderantly probable country risk be taken into account by means of a country-related globalised value adjustment
(globalised individual value adjustment), not only in the form of writing down a debt but also by means of a provision for
a contingent (guarantee) liability?
3.
Is it permitted or required to ascertain the country risk on the basis of one's own connections, experience and information,
or of knowledge in the sector or by using rating tables, or by a combination of those methods, or by a different estimation?
4.
May a risk be taken into account even if
(a)
it already existed when the basic transaction was entered into, and
(b)
it is many times greater than the profit or earnings to be made from it (in this case, a guarantee fee for a period of less
than one year)?
5.
Are the country risk and the creditworthiness risk to be taken into account, if necessary, alongside each other for the same
loan by means of a value adjustment or a provision, whether as a single amount or as separate amounts?
6.
Is a combination of provisions for risk also permissible if one risk is ascertained individually and the other risk globally?
7.
Is double provision for a risk properly avoided by the fact that, after one risk has been taken into account, only the loan
amount arithmetically reduced thereby is then used as the basis of assessment of the remaining other risk?
III.
Value clarification
1.
Must not only increases but also decreases in risks be taken into account as value clarification, going beyond the wording
of Article 31(1)(c)(bb) of the Directive (first clause of Paragraph 252(1)(4) of the HGB)?
2.
Does a loan repayment between the balance-sheet date and the date on which the balance sheet is drawn up constitute a (retrospectively)
value-clarifying fact and not merely a value-influencing fact which has effect only in the year of repayment?
3.
For value clarifications of risks which are of relatively slight importance for the undertaking concerned, instead of the
period up to the signature of the balance sheet or the establishment of the annual accounts, may the date on which valuation
of the relevant balance-sheet item is completed be taken?
Preliminary observations
Before replying to the questions referred, it will be useful to clarify the subject-matter, scope and nature of the provisions
of the Fourth Directive.
First, as has been recalled in paragraph 5 of this judgment, the Fourth Directive is intended in particular to ensure the
coordination of national provisions on the structure and content of annual accounts and reports and methods of valuation,
for the purposes of protecting members and third parties.  To that end, according to the third recital in its preamble, it
is designed only to establish minimum conditions as to the extent of the financial information to be made available to the
public.
The Fourth Directive is not designed to lay down the conditions in which the annual accounts of companies may or must serve
as a basis for the determination by the tax authorities of the Member States of the basis for assessment and the amount of
taxes, such as the trade tax at issue in the main proceedings.  However, it is in no way excluded that annual accounts might
be used by Member States as a reference base for tax purposes.
Next, as regards the scope of the Fourth Directive, it was limited, in the version applicable at the material date in the
main proceedings, to public limited companies, public limited partnerships and private limited companies.  After that date,
its scope was extended to subsidiaries of capital companies, such as BIAO-Afribank, by the Eleventh Council Directive 89/666/EEC
of 21 December 1989 concerning disclosure requirements in respect of branches opened in a Member State by certain types of
company governed by the law of another State (OJ 1989 L 395, p. 36), by Council Directive 86/635/EEC of 8 December 1986 on
the annual accounts and consolidated accounts of banks and other financial institutions (OJ 1986 L 372, p. 1), by Council
Directive 89/117/EEC of 13 February 1989 on the obligations of branches established in a Member State of credit institutions
and financial institutions having their head offices outside that Member State regarding the publication of annual accounting
documents (OJ 1989 L 44, p. 40), and by Council Directive 90/605/EEC of 8 November 1990 amending Directive 78/660/EEC on annual
accounts and Directive 83/349/EEC on consolidated accounts as regards the scope of those Directives (OJ 1990 L 317, p. 60).
Finally, with regard to the content of the Fourth Directive, both the fourth recital in its preamble and Article 2(3) state
as a fundamental principle that annual accounts must give a true and fair view of the company's assets and liabilities, financial
position and profit or loss (Case C-234/94
Tomberger
[1996] ECR I-3133, paragraph 17, rectified by order of 10 July 1997, not published in the ECR). That principle requires,
first, that the annual accounts of companies should reflect the activities and transactions which they are supposed to describe
and, secondly, that the accounting information be given in the form judged to be the soundest and most appropriate for satisfying
third parties' needs for information, without harming the interests of the company (Case C-275/97
DE+ES Bauunternehmung
[1999] ECR I-5331, paragraphs 26 and 27).
It is for that purpose that the Fourth Directive prescribes compulsory layouts for drawing up the balance sheet and the profit
and loss account, the minimum content of the notes on the accounts and the annual report and, in accordance with the fifth
recital in the preamble to the directive, the coordination of the various valuation methods to the extent necessary to ensure
that annual accounts disclose comparable and equivalent information.  However, in accordance with Article 2(5) of the Fourth
Directive, where the application of a provision of the directive is incompatible with the
true and fair view principle, that provision must be departed from in order to give a true and fair view of the assets and liabilities.
The
true and fair view principle must also be understood in the light of other principles set out in Article 2 of the Fourth Directive.  That means,
in particular, the principle whereby the annual accounts, comprising the balance sheet, the profit and loss account and the
notes on the accounts, are to constitute a composite whole (Article 2(1)), the principle that the annual accounts are to be
drawn up clearly and in accordance with the provisions of that directive (Article 2(2)), and the principle that, where the
application of the directive would not be sufficient to give a true and fair view within the meaning of Article 2(3), additional
information must be given (Article 2(4)).
Moreover, when valuing items, the principle of prudence must always be observed (Article 31(1)(c) of the Fourth Directive)
and the amount of provisions for liabilities and losses must not exceed what is needed (First paragraph of Article 42 of the
directive).
It is apparent both from those considerations and from the wording itself of the Fourth Directive that that directive is not
intended to regulate in detail all accounting questions which depend on specific facts.  Its aim is essentially to set out
certain general principles which must guide the drawing up of the annual accounts of companies in all Member States.  Those
principles necessarily have to be applied through the adoption of national rules which, provided that the requirements of
the Fourth Directive are complied with, may vary according to the accounting practices of the Member States concerned.
In that respect, it should be noted that, increasingly over the years, national practices have tended to align themselves
on international accounting standards, referred to as
IAS [see, in that respect, Commission Communication COM(95) 508 final of 14 November 1995, entitled
Accounting harmonisation: A new strategy vis-à-vis international harmonisation, referred to by the national court, and Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19
July 2002 on the application of international accounting standards (OJ 2002 L 243, p. 1)].
The first part of the questions
In the first part of its questions, the referring court is essentially enquiring as to the admissibility of its reference
for a preliminary ruling on the ground that, at the material date in the main proceedings, Member States were not required
to apply the provisions of the Fourth Directive to the annual accounts of a body like BIAO-Afribank.  It has further doubts
as to the admissibility of its questions having regard to the fact that, first, the national legislation transposing the Fourth
Directive did not reproduce the principles set out in the directive
verbatim
, and, secondly, the legislation on tax accounts is based only indirectly on that national transposing legislation and, therefore,
transposes the Fourth Directive outside the context which it envisages.
Observations submitted to the Court
The Finanzamt maintains that the reference for a preliminary ruling is inadmissible because the EStG, Paragraph 5(1) of which
refers to the principles of proper accounting, has been in force since 1934 and, therefore, was not intended to refer to Community
law, or,
a fortiori
, to transpose the Fourth Directive.
In the Finanzamt's submission, an interpretation of the Fourth Directive is not decisive for resolving the dispute in the
main proceedings.  The resolution of that dispute turns solely on the question whether a provision, admittedly proper in relation
to commercial law, must also be taken into account for the purposes of tax on earnings under German tax law.  For the purposes
of German tax on earnings, the permissible amount of a provision, such as that at issue before the Finanzgericht Hamburg,
must in principle be determined in the context of the conditions laid down by the various national tax provisions and by the
national case-law of the Bundesfinanzhof (Germany) in relation to the latter.
On the other hand, according to the referring court and the observations of the German Government, the national legislature,
in transposing the Fourth Directive, intended to do so in such a way that the accounts of bodies like BIAO-Afribank were treated
in the same manner as those of companies falling directly within the scope of that directive.
In that respect, the referring court refers explicitly to the judgment of the Bundesfinanzhof of 22 November 1988, in which
that court held that
only global valuation of assets and liabilities is capable of giving a true and fair view of the financial position and results
[of the company concerned]  (see the judgment in
BFHE
155, 322, BStBl II 1989, 359, point II 2d).  According to the national court, it follows that Section I of Book III of the
HGB, applicable to all taxpayers required to draw up a balance sheet, constitutes a transposition of the Fourth Directive,
in so far as its provisions are relevant for the present case.
More particularly, in its order for reference, the national court has emphasised three aspects of German legislation (including,
in particular, the Commercial Code and the tax rules) which, in the submission of the German Government, are capable of constituting
a reference, albeit an indirect one, to the provisions of the Fourth Directive.
First, it might be considered that the provisions of the Fourth Directive, particularly the
true and fair view principle, are in fact transposed by the HGB, even though Section I of Book III of the latter has not reproduced them
verbatim
as regards national provisions common to all traders.  Next, the Community provisions might also be applicable through the
medium of the principles of proper accounting referred to in the first sentence of Paragraph 5(1) of the EStG.  Finally, in
the case of valuing provisions for debts, those provisions might apply through the medium of other concepts and criteria appearing
in special higher-ranking tax rules.
According to the German Government, it was found unnecessary to repeat the
true and fair view principle in Paragraphs 238 to 263 of the HGB, there being conformity already since that principle was incorporated in the
previous national statute.  First, Paragraph 238 of the HGB provides that the position of the undertaking must be stated with
precision, and, second, Paragraph 242 of the HGB has always been interpreted by the German courts as imposing an obligation
that the balance sheet be truthful, which corresponds to the
true and fair view concept.
According to that Government, the fact that the
true and fair view principle appears expressly in Paragraph 264 of the HGB does not mean that its absence in Paragraphs 238 to 263 of the HGB
implies that that principle applies only to capital companies to the exclusion of all other traders.  At the hearing, counsel
for the German Government maintained that the German legislature always intended to enforce compliance with that principle
in practice, in accordance with Article 2(3) of the Fourth Directive.  There was therefore no risk of divergence between national
provisions and the corresponding provisions of Community law.
Accordingly, citing the judgment in Case C-28/95
Leur-Bloem
[1997] ECR I-4161, both the Commission and the German Government submit that the Court may give a preliminary ruling where
national law either refers directly to the Fourth Directive or expressly or impliedly refers to a rule of national law adopted
in order to transpose that directive or to adapt to it voluntarily by an indirect reference.
Findings of the Court
In the context of the cooperation between the Court of Justice and the national courts provided for by Article 234 EC, it
is solely for the national court before which the dispute has been brought, and which must assume responsibility for the subsequent
judicial decision, to determine in the light of the particular circumstances of the case both the need for a preliminary ruling
in order to enable it to deliver judgment and the relevance of the questions which it submits to the Court (see, in particular,
Case C-415/93
Bosman
[1995] ECR I-4921, paragraph 59, and Case C-218/00
Cisal
[2002] ECR I-691, paragraph 18).
The Court of Justice is therefore bound in principle to give a ruling unless it is obvious that the request is in reality
designed to induce the Court to give a ruling by means of a fictitious dispute, or to deliver advisory opinions on general
or hypothetical questions, or that the interpretation of Community law requested bears no relation to the actual facts of
the main action or its purpose, or that the Court does not have before it the factual or legal material necessary to give
a useful answer to the questions submitted to it (see, in particular, Case 244/80
Foglia
v
Novello
[1981] ECR 3045, paragraph 18;
Bosman
, paragraph 61; and Case C-134/95
USSL No 47 di Biella
[1997] ECR I-195, paragraph 12).
In this case, although the questions concern the internal tax situation and appear at first sight to be unconnected with Community
law, in reality the problems of interpretation of Community law which the national court seeks to resolve are essentially
concerned with the accounting approach required by the Fourth Directive, more particularly as regards the taking into account
of possible losses arising from a guarantee of a loan whose outcome was unknown at the date of the balance sheet of the company
concerned.  It is therefore neither a hypothetical problem nor a question bearing no relation to the actual facts of the main
action or its purpose.
In that respect, the answer to these questions does not depend upon the distinction between capital companies, to which the
Fourth Directive applied at the date of the facts in the main action, and other bodies, such as BIAO-Afribank.  Moreover,
it is relevant to note that, subsequently to the facts in the main action, the provisions of the Fourth Directive in question
were applied without modification to such bodies (see paragraph 71 above).
It is true that the provisions of national law applicable at the material time to bodies like BIAO-Afribank did not reproduce
the provisions of the Fourth Directive
verbatim
.  On the other hand, according to the German Government, nothing in German legislation prevented the aim, the principles
and the provisions of that directive from being fully complied with as regards drawing up the annual accounts of such bodies.
In that respect, the German Government argues, and the order for reference moreover acknowledges, that any interpretation
given by the Court of the provisions of the Fourth Directive would be binding for the resolution of the dispute in the main
proceedings by the referring court.
The circumstances of that case are therefore to be distinguished from those at issue in Case C-346/93
Kleinwort-Benson
[1995] ECR I-615, in which the Court held, in paragraph 18 of its judgment, that the legislation in question of the United
Kingdom of Great Britain and Northern Ireland expressly provided for the authorities of the contracting State in question
to adopt modifications
designed to produce divergence between the provisions of that legislation and the corresponding provisions of the Convention on Jurisdiction and the Enforcement
of Judgments in Civil and Commercial matters signed in Brussels on 27 September 1968 (OJ 1972 L 299, p. 32), as amended by
the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain
and Northern Ireland (OJ 1978 L 304, p. 1 and ─ text of the Convention as amended ─ p. 77).
The reply to the first part of the reference for a preliminary ruling must therefore be that the questions appearing in the
second and third parts of the reference, concerning the interpretation of the Fourth Directive, are admissible.
The second part of the questions
The dispute in the main proceedings concerns a loan guarantee the outcome of which was unknown at the balance-sheet date.
On the one hand, that guarantee offered the prospect of a profit in the shape of the payment to BIAO-Afribank of the guarantee
fee, equal to 7/8% per annum of the loans falling within the scope of BIAO-Afribank's sub-participation, payable in the event
of the debt guaranteed being repaid by the Corporación del Cobre to BHF Bank.
It is undisputed that the solvency of the Corporación del Cobre was not in any doubt and that there had never been any delays
in payment on its part.  To that extent, the prospect of profit for BIAO-Afribank appears to have been genuine.
On the other hand, the likelihood of Corporación del Cobre repaying the guaranteed debt was affected by a dual risk factor.
First, copper prices had fallen in 1989.  Secondly, in November 1989, the press had referred to a threat of strikes in Chilean
copper mines.
In those circumstances, it could not be excluded not only that BIAO-Afribank would not receive the guarantee fee stipulated
in the participation agreement, but also that it would have to pay the sum guaranteed under that agreement, to the extent
of USD 1.5 million, to BHF Bank.  In that case, the guarantee  would have constituted a significant risk of loss at the balance-sheet
date.
After the balance-sheet date, but before the date on which the annual accounts were drawn up, Corporación del Cobre repaid
the guaranteed amounts to BHF Bank, and BIAO-Afribank received the first instalment of the guarantee fee, in accordance with
what had been agreed.  Viewed from that perspective, the guarantee was capable of constituting a profit for BIAO-Afribank.
In the second part of its questions, the referring court essentially asks whether and in what manner the amount of the commitment
undertaken by BIAO-Afribank in guaranteeing the loan granted by BHF Bank to the Corporación del Cobre should appear in the
annual accounts for the year ending on 31 December 1989.  More particularly, it asks:
─
whether a provision concerning a risk such as the
country risk in question, affecting a commitment which appears at the foot of the balance sheet pursuant to Article 14 of the Fourth
Directive, may be entered on the liabilities side of the balance sheet, pursuant to Article 20(1) of that directive;
─
whether a latent risk of insolvency and a
country risk may be taken into account by means of a globalised value adjustment, or provision (as the case may be);
─
what are the criteria and methods to be used in assessing the degree of probability of the
country risk;
─
whether the principle of prudence requires that a provision should take a pre-existing and disproportionate risk into account;
─
whether a latent risk of insolvency and a
country risk, taken into account simultaneously, must appear as a single amount or separately; and
─
which methods should be used in order to avoid risks being taken into account twice over.
These questions concern both the presentation of the balance sheet and the methods of valuing the items relating thereto.
The possibility of entering on the liabilities side of the balance sheet a provision concerning a risk, such as
country risk, affecting a commitment appearing at the foot of the balance sheet
Article 14 of the Fourth Directive, which appears in Section 3 concerning the layout of the balance sheet, provides that all
commitments by way of guarantee of any kind must, if there is no obligation to show them as liabilities, be clearly set out
at the foot of the balance sheet or in the notes on the accounts.  Whether there is an obligation to enter such a commitment
as a liability, rather than at the foot of the balance sheet or in the notes, is in principle a matter for national law, read
where appropriate in the light of international accounting standards (IAS).
In this case, according to the referring court, the commitment in question clearly falls within Article 14 of the Fourth Directive.
In addition, the questions put by that court presuppose that, pursuant to German law, that commitment rightly appeared at
the foot of the balance sheet and did not have to be entered as such on the liabilities side.
As regards the
liabilities which may be the subject of a provision under Article 20(1) of the Fourth Directive, it should be noted that that provision
provides for the possibility of entering on the liabilities side of the balance sheet only
provisions for liabilities and charges (in French
provisions pour risques et charges; in German
Rückstellungen) which are intended to cover losses or debts which are likely or certain at the balance-sheet date.
In this case, the German Government argues that, although at the balance-sheet date the nature of the possible loss arising
from default by the Corporación del Cobre was clearly circumscribed and its amount and date of occurrence were more or less
determined, that loss could not be described as likely or certain within the meaning of Article 20(1) of the Fourth Directive.
The Commission argues that the principle of prudence, set out in Article 31(1)(c) of the Fourth Directive, and the
true and fair view principle require that the risk of loss should be taken into account as a provision.
In that regard, it should be noted that a
country risk, as defined in this case, is not in itself a
liability as referred to in Article 20(1) of the Fourth Directive; it constitutes only one of the many factors to be taken into account
in order to determine whether a loss resulting from the commitment in question may be described as
likely or certain within the meaning of that provision.
Therefore, in order to determine whether it is appropriate to constitute a provision under Article 20(1) of the Fourth Directive,
in respect of a commitment appearing at the foot of the balance sheet pursuant to Article 14, the relevant question is whether
that commitment gave rise to the likelihood, or indeed the certainty, at the balance-sheet date, of the existence of a
loss or debt.
In that case, a provision for liabilities and charges relating to that commitment would be necessary.  Not to make express
mention on the balance sheet of a likely or certain loss would be incompatible with the principles of prudence and a
true and fair view (see, to that effect, in another context,
DE+ES Bauunternehmung
, paragraph 26).
However, in accordance with the first paragraph of Article 42 of the Fourth Directive, such a provision should not go beyond
what is necessary.
It is therefore for the referring court to determine whether, at the balance-sheet date, a loss or debt arising from the guarantee
commitment undertaken by BIAO-Afribank was likely or certain.  If not, there would have been no cause to enter a provision
as a liability on the balance sheet.
Nevertheless, in relation to a commitment that must be mentioned at the foot of the balance sheet, the principles of prudence
and a
true and fair view require that mention should also be made there of risks (in the broad sense), such as a
country risk which is capable of affecting the consequences of the commitment undertaken and, hence, the assessment of the financial
situation.
The methods of valuation
The question of which valuation methods apply arises only if the referring court were to hold that a provision must be constituted
in relation to the commitment in question.
It should also be noted that, although the referring court seems to envisage the possibility of writing down assets pursuant
to Article 39(1)(b) and (c) of the Fourth Directive, it does not specify in what way such a method of valuation might be relevant
in this case.
As for the possibility of carrying out a globalised valuation, Article 31(1)(e) of the Fourth Directive provides that the
components of asset and liability items must be valued separately.  The Court has, however, held that a derogation under Article
31(2) may be appropriate where, in the light of the
true and fair view principle, a separate valuation would not give the truest and fairest possible view of the actual financial position of the
company concerned (
DE+ES Bauunternehmung
, paragraphs 31 and 32).
In a case such as that in point in the main proceedings, where there are many uncertain and even contradictory elements (see
paragraphs 95 to 98 of this judgment), it is possible that, in order to ensure compliance with the principles of prudence
and a true and fair view, the most appropriate approach would be to carry out a globalised assessment of all the relevant
factors.
As for the questions seeking to obtain clarification as to the criteria for assessing the degree of likelihood of a risk,
the legitimacy of taking
country risk and the risk of insolvency into account simultaneously, and the ways of avoiding risks being taken into account twice
over, it is sufficient to point out that the Fourth Directive merely sets out general principles without seeking to regulate
all their possible applications.  In the absence of such particulars, that assessment is a matter for national law, read where
appropriate in the light of the international accounting standards (IAS) as they applied at the time of the facts in the main
proceedings, provided always that the general principles set out by the Fourth Directive, as referred to in paragraphs 72
to 75 of this judgment, are fully complied with.
Having regard to the whole of the above considerations, the answer to the second part of the questions must be that the Fourth
Directive does not preclude a provision intended to cover possible losses or debts arising from a commitment appearing at
the foot of the balance sheet pursuant to Article 14 of that directive from being entered on the liabilities side of the balance
sheet pursuant to Article 20(1), provided that the loss or debt in question may be characterised as
likely or certain at the balance-sheet date.  Article 31(1)(e) of the Fourth Directive does not exclude the possibility that, in order to ensure
compliance with the principle of prudence and the principle that a true and fair view of the assets and liabilities be given,
the most appropriate method of valuation might be to carry out a globalised assessment of all the relevant factors.
The third part of the questions
In the third part of its questions, the referring court asks, essentially, whether a commitment by way of guarantee should
be valued at the balance-sheet date, where the outcome of the guarantee was unknown at that date, or whether it should be
revalued retrospectively at the date on which the annual accounts were drawn up, it being known on that latter date that the
debt had been repaid.  In so asking, the referring court is seeking to ascertain the relevant date for valuing balance-sheet
items and, hence, whether or not the reduction or disappearance of a risk, occurring after the balance-sheet date, constitute
facts requiring a retrospective revaluation of those items.
Pursuant to Article 31(1)(c)(bb) of the Fourth Directive, for the purposes of valuing items in the annual accounts, account
must be taken of all foreseeable liabilities and potential losses arising in the course of the financial year concerned or
of a previous one.  In principle, therefore, the relevant date for valuing asset and liability items is the balance-sheet
date.
The Fourth Directive makes no explicit provision for taking account of the fact that a risk (such as the risk of the debtor's
insolvency, or
country risk) has disappeared before the date of drawing up the balance sheet.
However, Article 31(1)(c)(bb) forms part of a list of examples, introduced by the words
valuation must be made on a prudent basis, and in particular ....  The list is therefore not exhaustive.  Similarly, as has already been pointed out a number of times, Article 2(3) of, and
the fourth recital in the preamble to, the Fourth Directive, lay down the principle that the balance sheet must present a
true and fair view of the company's assets and liabilities.  The Court has already held that compliance with that principle
requires account to be taken of all elements, such as profits made, charges, products, risks and losses, which actually relate
to the financial year in question (
Tomberger
, paragraph 22).
It must therefore be held that an event, such as the repayment by the Corporación del Cobre of the loan granted to it, which
took place after the balance-sheet date, does not actually relate to the financial year in question.  It does not therefore
constitute a fact necessitating retrospective reassessment of the value of a provision relating to that loan appearing on
the liabilities side of the balance sheet.
However, to omit from the annual accounts all mention of circumstances such as the reduction or disappearance of such a risk
could be capable of misleading, and might therefore be contrary to the
true and fair view principle (see, to that effect,
Tomberger
, paragraph 22).  Compliance with that principle requires that mention must be made somewhere in the annual accounts of the
disappearance or reduction of such a risk.  Determination of the most appropriate way of showing that mention in the balance
sheet is a matter for national law.
The answer to the third part of the questions must therefore be that, in circumstances such as those in point in the main
proceedings, repayment of a loan, which takes place after the balance-sheet date (that being the relevant date for valuing
balance-sheet items), does not constitute a fact necessitating retrospective revaluation of a provision relating to that loan
entered on the liabilities side of the balance sheet.  However, compliance with the principle that a
true and fair view be given of the company's assets and liabilities requires that mention should be made in the annual accounts of the disappearance
of the risk covered by that provision.
Costs
The costs incurred by the German Government and by the Commission, which have submitted observations to the Court, are not
recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the proceedings pending before
the national court, the decision on costs is a matter for that court.
On those grounds,
THE COURT,
in answer to the questions referred to it by the Finanzgericht Hamburg by order of 29 April 1999, hereby rules:
1.
The questions appearing in the second and third parts of the reference for a preliminary ruling, concerning the interpretation
of the Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts
of certain types of companies, are admissible.
2.
The Fourth Directive 78/660 does not preclude a provision intended to cover possible losses or debts arising from a commitment
appearing at the foot of the balance sheet pursuant to Article 14 of that directive from being entered on the liabilities
side of the balance sheet pursuant to Article 20(1), provided that the loss or debt in question may be characterised as
likely or certain at the balance-sheet date.  Article 31(1)(e) of that directive does not exclude the possibility that, in order to ensure
compliance with the principle of prudence and the principle that a true and fair view of the assets and liabilities be given,
the most appropriate method of valuation might be to carry out a globalised assessment of all the relevant factors.
3.
In circumstances such as those in point in the main proceedings, repayment of a loan, which takes place after the balance-sheet
date (that being the relevant date for valuing balance-sheet items), does not constitute a fact necessitating retrospective
revaluation of a provision relating to that loan entered on the liabilities side of the balance sheet.  However, compliance
with the principle that a true and fair view of the assets and liabilities be given requires that mention should be made in
the annual accounts of the disappearance of the risk covered by that provision.
Rodríguez Iglesias
Puissochet
Edward
La Pergola
Jann
Skouris
Macken
Colneric
von Bahr
Delivered in open court in Luxembourg on 7 January 2003.
R. Grass
G.C. Rodríguez Iglesias
Registrar
President
–
Language of the case: German.