Term and Definition of Purchase Price
Der Purchase Price is a key concept in commercial and tax law, referring to the costs incurred by a company for the acquisition of goods up to the point they are received within the company. This includes not only the net purchase price, but also all incidental costs arising in connection with the acquisition. Accurate determination and documentation of the purchase price is particularly important for accounting, pricing, and the calculation of taxable profit.
Legal Basis of the Purchase Price
Provisions under Commercial Law
In German commercial law, the purchase price plays a vital role in the valuation of inventories and in determining the cost of goods sold. According to § 255 of the German Commercial Code (HGB), acquisition costs are used as the basis for the valuation of inventories. As stated in paragraph 1, these costs include, besides the purchase price, all incidental expenses incurred with the acquisition, such as transport, insurance, and customs, less any discounts granted.
Structure of Acquisition Costs According to the HGB
- Purchase price: The contractually agreed price for the goods to be acquired.
- Incidental costs: Costs for transport, insurance, loading, customs, and commissions.
- Discounts: Cash discounts, bonuses, and rebates that are directly related to the acquisition of the goods must be deducted.
Tax Law Classification
In tax law as well, the purchase price is decisive for the calculation of profit. According to § 6 of the German Income Tax Act (EStG), inventories are valued at acquisition costs. These include, just as in commercial law, all expenses associated with acquisition pursuant to § 255 para. 1 HGB. The correct calculation of the purchase price thus influences the amount of the reported cost of goods sold, which in turn is crucial for determining taxable profit.
Distinction from Production Costs
The purchase price must be distinguished from production costs incurred during in-house manufacturing according to § 255 para. 2 HGB. While the purchase price refers to acquired goods, production costs include the costs of producing goods within one’s own business.
Areas of Application for the Purchase Price
Accounting and Inventory
The purchase price serves as the basis for valuing inventory assets in the annual financial statements (§ 266 HGB). Inventory assessed at the purchase price is usually recognized in the balance sheet at acquisition cost. In the event of price changes or value reductions, the commercial law lower-of-cost-or-market principles (§ 253 HGB) apply, which may lead to a write-down of the purchase price.
Taxable Profit Determination
In the determination of profit according to § 4 para. 1 EStG (business asset comparison) as well as under § 5 EStG (supplementary tax provisions), the purchase price is a key factor in calculating the cost of goods sold and hence the amount of taxable profit.
Calculation and Pricing
Accurate determination of the purchase price is especially crucial for trading companies when calculating sales prices. It forms the basis for pricing since further costs (e.g., overheads, selling and administrative expenses) and the desired profit margin are added to the purchase price.
Components and Calculation of the Purchase Price
Inclusion of Incidental Costs
The purchase price encompasses, in addition to the goods price itself, all incidental costs incurred until the goods arrive at the company’s own warehouse. The following items must be taken into account:
- Transport costs (freight, shipping)
- Customs duties and import fees
- Insurance costs during transport
- Commissions for agents
- Costs for receipt and inspection of goods
- Internal transport costs (if serving warehouse supply)
Deduction of Discounts and Returns
All discounts, such as cash discounts, bonuses, or rebates associated with the acquisition of goods, must be deducted from the purchase price. Returns of already delivered goods must also be taken into account.
Exclusion of Certain Costs
According to commercial and tax law, expenses arising in connection with the sale of goods or after their storage—such as the following—are not part of the purchase price:
- Distribution costs
- Administrative costs
- Interest on merchandise credits (unless capitalized)
Documentation and Verification Obligations
Accounting Requirements
Proper documentation of the individual components of the purchase price is required under § 238 HGB (accounting obligation). Companies must carefully retain all records necessary to verify the purchase price (purchase invoices, bills of lading, insurance proofs, customs documentation, etc.).
Verification in Case of Audit
The tax authorities require a substantiated verification of how the purchase price was determined during audits. Incorrect or incomplete calculations may result in additions to the cost of goods sold and, consequently, in tax back payments.
Special Cases in Connection with the Purchase Price
Foreign Exchange Losses and Gains
For goods purchased in foreign currency, conversion into euros at the time of acquisition is decisive. Exchange rate losses or gains incurred up to the arrival of goods are included in acquisition costs and, thus, form part of the purchase price calculation.
Refund of Subsequent Costs or Additional Payments
If, subsequently, the company receives an additional discount or is required to make an extra payment, this must, according to commercial law principles, be treated as a subsequent reduction or increase of acquisition costs and adjusted accordingly.
Special Provisions for VAT Purposes
For value-added tax purposes, the purchase price is generally determined based on the net price (excluding VAT), provided input tax deduction is possible.
Purchase Price in International Trade
In cross-border transactions, the purchase price is particularly important in connection with customs and import VAT. The basis for customs purposes is generally the transaction value according to the Customs Code, which is largely identical to the purchase price under commercial law.
Importance in Corporate Practice and Case Law
The correct determination of the purchase price is continually addressed in case law, especially in connection with disputes over the deductibility of incidental costs, the appropriate valuation of inventories, or the question of how post-acquisition price changes are included. The commercial and tax law standards are decisive in this context and are subject to strict interpretation.
Summary
The purchase price is an economically and legally significant value that comprises all costs associated with acquiring goods up to their receipt in the company, less any discounts. Commercial and tax regulations define in detail which components must be included in the calculation, what evidence is required, and what special cases must be considered. A precise and transparent calculation of the purchase price is essential in practice for proper accounting and for determining taxable profit.
Frequently Asked Questions
How is the purchase price relevant in commercial law?
Under German commercial law, the purchase price is particularly important for the accounting valuation and recognition of inventories and goods. According to the German Commercial Code (HGB), in particular § 253 para. 1 sentence 1 HGB, assets, including inventories, may be recorded at no more than their acquisition or production costs (significantly influenced by the purchase price). At the balance sheet date, a distinction is made between acquisition or production cost and the lower realizable value (lower-of-cost-or-market principle). Companies must therefore maintain a clear, traceable, and documented calculation of the purchase price to comply with commercial law requirements and ensure proper accounting. An incorrect or non-compliant calculation of the purchase price may lead to objections during a tax audit and, in the worst case, to corrections in the financial statements.
What documentation requirements exist regarding the purchase price?
According to § 238 HGB and the GoBD (Principles of Proper Accounting and Storage of Books, Records, and Documents in Electronic Form as well as Data Access), companies are obliged to document the purchase price completely, traceably, and promptly. This includes original invoices, contracts, shipping and customs documents, and other cost proofs demonstrating the composition of the purchase price in each case. In addition, especially for internal or external audits, all relevant documents must be quickly accessible and legible. Violations of these documentation obligations can result in tax and commercial law consequences, such as estimates by the tax office or sanctions for improper accounting.
May discounts, cash discounts, and bonuses be legally deducted in calculating the purchase price?
Legally, it is expressly stipulated that all price reductions, including discounts, cash discounts, and bonuses, must be taken into account when determining the purchase price. According to § 255 para. 1 HGB, the acquisition cost of goods must include “everything that has been paid to acquire the asset and to bring it to a ready-to-use state, less any reductions in price.” This means cash discounts taken, rebates, and bonuses reduce acquisition costs and thereby lower the purchase price. These price reductions must be included in the calculation, even if they are granted at a later time (accrual assignment may be necessary).
Which statutory provisions govern the components of the purchase price?
The key statutory provision is § 255 HGB. It governs acquisition and production costs. According to § 255 para. 1 HGB, acquisition costs include, in addition to the purchase price, incidental acquisition costs (e.g., transport, packaging, customs) and exclude price reductions. For tax purposes, § 6 para. 1 no. 2 EStG is also relevant, particularly in the context of profit determination. The precise distinction of which cost components are legally part of the purchase price is thus derived from these paragraphs as well as relevant administrative instructions and case law.
What are the consequences of incorrect determination of the purchase price in the annual financial statements?
If the purchase price is calculated incorrectly in the annual financial statements under commercial law, this can have serious consequences: First, accounting inaccuracies arise, impacting the profit and loss statement and the tax balance sheet. In case of a tax audit, there may be additional tax assessments, interest demands (§ 233a AO), administrative offences (§ 379 AO), or even criminal tax proceedings (§ 370 AO) if intent is suspected. Civil claims for damages may also arise, for example, if incorrect figures are provided to third parties (e.g., investors). Commercial law sanctions are also possible if the annual financial statements do not comply with the principles of proper accounting.
How should the purchase price be treated legally in the case of exchanges, returns, or complaints?
If goods are returned or complained about, legally it is necessary to adjust the originally recognized purchase price. If goods are returned and a credit note is issued by the supplier, the purchase price is reduced by the credit amount and any proportional incidental costs. In complaints leading to a price reduction, a corresponding reduction of the purchase price must also be made. These transactions must be fully documented and traceable in accounting to comply with legal accounting requirements (see § 238 HGB, GoBD).
Are companies with different legal forms subject to the same rules regarding the purchase price?
In principle, the commercial law regulations on the purchase price are binding for all merchants under the HGB, regardless of the legal form of the company (sole proprietorship, GbR, GmbH, AG, etc.), as long as they are required to keep accounts. Sole proprietors and small businesses not subject to accounting may use alternative determination methods within the framework of the income surplus calculation according to § 4 para. 3 EStG, but must also observe the substantive foundations of the purchase price in respect of business expenses. Depending on their tax profit calculation method, there may be detailed differences derived from the respective tax law.
