The impact of the Corona crisis on society and public life in Germany remains enormous. Still nobody can foresee what is yet to come. It is even more difficult to assess what short, medium and long-term consequences the current situation will have on the economy. The current situation demands action from companies and their managers on a day-to-day basis.
The German legislation has launched far-reaching stimulus packages for companies to facilitate a possible mitigation of the corona crisis. In addition to easing the burden of short-time work allowance ("Kurzarbeitergeld”) it includes subsidies and support programs to improve liquidity (e.g. KfW loans), extended deadlines for filing for insolvency, civil and corporate law regulations and federal government indemnity obligations, and in particular many tax law measures.
From the very beginning, federal and state governments and the tax authorities have issued orders to relieve the burden on affected companies. The corresponding decrees have introduced relief through extended deferral and limited enforcement measures, and the adjustment of advance payments for income, corporation and trade tax has also been considerably simplified. A reduction and reimbursement of special VAT prepayments is also possible throughout Germany.
Of course we are happy to assist you with the respective measures and application forms.
Adjustment of advance payments for income, corporate and trade tax as well as VAT
Taxpayers who can prove that they are directly and not insubstantially affected may, provided they disclose their financial circumstances and income, submit applications for adjustment/deferment of advance payments for income and corporate tax until 31 December 2020. According to the underlying BMF (Federal Ministry of Finance) letter of 19 March 2020, these applications are not to be rejected on the grounds that the taxpayers are not able to prove the value of the damages incurred in each case.
The same procedure is to be followed for trade tax pursuant to a similar state (Länder-) decree - also dated 19 March 2020. Until 31 December 2020, taxpayers may apply for a reduction of the trade tax base for the purpose of advance payments, provided that they disclose their financial circumstances and income. The adjustment of trade tax prepayments is made in particular in cases where the tax office also adjusts income and corporation tax prepayments.
Upon request, the special advance payment of VAT paid at the beginning of 2020 will also be reduced to either partial or full amount. Taxpayers can submit the application informally, using the usual form or digitally via Elster. Any resulting credit balances will be paid out - subject to the possibility of offsetting against due wage tax. The permanent extension of the term of payment remains in force even in the event of a refund.
Requests for adjustment of advance payments that only concern periods after 31 December 2020 shall be duly substantiated.
In addition to the Bavarian State Tax Office, other offices have already provided application forms "Tax breaks on the basis of the effects of Coronavirus" for download. These forms can be used to apply for a reduction in advance tax payments (income tax, corporate income tax) or the tax base for the purposes of advance payments of trade tax.
Notes and further developments:
- If, contrary to expectations, the financial burdens do not materialize or do not materialize in the forecasted amount, taxpayers are obliged, within the scope of the statutory duty to cooperate, to have their advance payments adjusted accordingly, also upwards.
- In the wake of the Corona Crisis, the Federal Government and the states (Länder) have set up various emergency aid programmes to support "solo" self-employed persons and micro-enterprises. Emergency aid is provided in the form of a one-off, non-repayable grant (which is graduated according to the number of employees) to cover ongoing operating expenses. The respective requirements and special considerations in the individual federal states must be taken into account. The subsidy constitutes company income and is therefore taxable. The applicant is required to include the grant in his tax return for 2020.
Application for a fixed reduction in advance payments already made for 2019
In a letter from the Federal Ministry of Finance dated 24 April 2020, the tax authorities granted a further relief: a fixed amount of loss carry-back from 2020 for the subsequent reduction of advance payments for 2019. Taxpayers with profit income or income from letting and leasing can submit a written application for this to the responsible tax office if they are directly and not inconsiderably negatively affected by the Corona crisis.
The amount of the carry-back from 2020 is 15% of the balance of the relevant income from profits and/or income from letting and leasing, which was used as the basis for determining the advance payments for 2019. It is to be deducted up to an amount of EUR 1,000,000 or, in the case of joint assessment, EUR 2,000,000. In individual cases, a higher deductible loss can be claimed by submitting detailed documentation. In some federal states, the application can already be submitted online.
a) Income taxes and VAT
Under the same conditions, taxpayers concerned may also submit requests for deferral of taxes already due or becoming due by 31 December 2020. In addition to income taxes, this also applies expressly to value added tax. There are no strict requirements to be met when reviewing the conditions for deferrals. These applications are not to be rejected either because the taxpayers cannot prove the value of the damages incurred in detail.
As a rule, interest on deferral can be waived.
Applications for deferral of taxes due after 31 December 2020 must also be duly substantiated.
Any applications for deferral of trade tax must be submitted to the municipalities in the territorial states and to the competent tax office in the city states, also in view of a possible connection with the effects of coronavirus.
b) Wage tax
Due to procedural reasons, tax deductions (wage tax and withholding tax on capital income) are technically not included in the simplifications. In some justified exceptional cases, however, it is conceivable to apply for an interest-free stay of execution. In these instances, personal contact with the tax office is advisable. In addition, pursuant to the BMF-circular dated 23 April 2020, a nationwide extension of the deadline for submitting income tax returns is now possible (see below under 7. b)).
c) Social security contributions
The umbrella organization of the statutory health insurance companies has announced that the collection agencies (= statutory health insurance companies) will make it easier to defer social security contributions for the months March to May 2020 (until the due date for contributions for the month of June 2020 at the latest that the collection agencies (= statutory health insurance companies) will make it easier to defer social security contributions for the months March to May 2020 (until the due date for contributions for the month of June 2020 at the latest).
The prerequisite for this is, however, that the immediate collection of the contributions without the deferral would be associated with considerable hardship for the employer, despite the preferential use of short-time allowance (Kurzarbeitergeld), subsidies and/or loans. Deferrals of contributions should therefore only be possible once all other aid has been used. In this respect, it can at least be assumed that (all) applications that come into consideration must have been submitted and that these will in all probability be approved.
In view of these requirements, which are to be interpreted rather narrowly even according to the pronouncements, the corresponding proofs, assurances and presentations (even if in an appropriately simpler form) are unfortunately hardly possible on short notice. In addition, a certain risk, also in terms of criminal law, can by no means be completely ruled out. We expressly draw attention to the uncertainties that exist in this respect. At present, no further and more precise statements can be made about the aforementioned prerequisites.
Enforcement measures/delay surcharges
Until 31 December 2020 (pursuant to the BMF-circular dated March 19, 2020) no enforcement measures shall be taken in respect of all taxes in arrears or due by that date if the tax office becomes aware, on the basis of information from the judgement debtor or otherwise, that the judgement debtor is directly and not inconsiderably affected by the consequences of the corona virus within the meaning of No. 1 above.
In the cases concerned, the late payment surcharges for these taxes forfeited in the period from 19 March 2020 (date of publication of the circular) to 31 December 2020 shall be waived as of 31 December 2020. The tax offices may regulate the remission by general ruling.
In this case as well, the applications for remission of trade tax in the city states must be addressed to the tax office and in all other cases to the municipality.
If the so-called Corona crisis causes delays in the submission of tax returns, the tax offices have been asked to waive any late filing surcharges.
b) Severely Disabled Persons Compensation Levy 2019
The Federal Employment Agency and the Integration and Inclusion Offices accept that notices for the year 2019 will be submitted by 30 June 2020 at the latest, even after statutory deadline (31 March 2020). The same applies to the payment of the compensatory charge (Ausgleichsabgabe).
This means that the Federal Employment Agency will not initiate any proceedings for late submission until this date and the Integration and Inclusion Offices will not levy any surcharges for late submission for the period from 1 April to 30 June 2020.
Tax-exempt bonus payments to employees
In accordance with the BMF circular of 9 April 2020 companies can make tax-exempt payments to their employees up to an amount of EUR 1,500 pursuant to § 3 No. 11 EStG or grant them as non-cash benefits. This includes special benefits that employees receive between 1 March 2020 and 31 December 2020. It is required however, that the benefits and support are paid in addition to the wages already due. The prerequisites mentioned in R 3.11 (2) sentence 2 no. 1-3 of the Wage Tax Guidelines do not need to be met; however, subsidies paid by the employer for short-time allowance are not covered by this tax exemption. The tax-free benefits must be recorded in the wage account. Other tax exemptions and valuation allowances remain unaffected. The allowances and benefits remain exempted from social security contributions.
The BMF has also urged the customs administration to take similar measures with regard to pre-payments, deferrals and postponement of enforcement. In the case of taxes regulated by federal law and administered by the Customs Administration, the main customs offices have been instructed to provide taxpayers with appropriate assistance. These include the following excise and transport taxes: import turnover tax, air transport tax, energy tax, electricity tax, tobacco tax, coffee tax, beer tax, alcohol tax, alcopop tax, sparkling wine tax, intermediate product tax and motor vehicle tax. These measures also apply to the insurance tax and the VAT, insofar as these are administered by the Federal Central Tax Office.
Extensions of the deadlines
a) Submission of the tax return
If taxpayers and their tax advisors are affected by the Corona pandemic, e.g. by a tense staffing situation, they may apply for an extension of the deadline for filing the 2018 tax return retroactively from 1 March 2020, provided that they give appropriate reasons. In these cases, the deadline extensions will initially be granted until 31 May 2020. If late fees have already been imposed, they may be waived on request.
b) Extension of deadline for wage tax registration
The BMF is now also extending the declaration period for quarterly and monthly wage tax registrations during the Corona crisis. Pursuant to the circular dated 23 April 2020, employers affected by the corona pandemic in all federal states can apply for a maximum two-month extension of the deadline for the wage tax registrations to be submitted. Correspondingly, the payment dates are also being adjusted accordingly.
Special regulations for cross-border commuters
The recommendation to stay at home as much as possible in the context of the Covid-19 pandemic also poses challenges for cross-border commuters who normally commute daily from their place of residence to another country for work. If they increasingly pursue their activities in their home office, this can also have tax consequences if, under the underlying provisions of the relevant double taxation agreement between the two countries concerned, exceeding a certain number of days on which the actual country of work is not visited leads to a partial change in the right of taxation. Very early on, a temporary special arrangement was sought, whereby working days for which wages are received and on which cross-border workers carry out their activities in the home office - only because of the measures to combat the Covid-19 pandemic - can be regarded as working days spent in the country in which the workers would have carried out their activities without the measures to combat the Covid-19 pandemic.
Special regulations on the taxation of cross-border commuters can be found in the BMF circular of 6 April 2020 concerning Luxembourg, in the BMF circular of 8 April 2020 concerning the Netherlands, in the BMF circular of 16 April 2020 concerning Austria, and in the BMF circular of 6 May concerning Belgium.
Promoting assistance to those affected by the Corona crisis
On 9 April 2020, the Federal Ministry of Finance published a letter on tax measures to promote aid for people affected by the Corona crisis.
For donations in this context, a simplified proof of donation in the form of a cash payment receipt or the booking confirmation from a bank is sufficient. Non-profit corporations can use donations received, their own funds, rooms or personnel in a tax-privileged manner to support people in physical, economic or financial need or make them available despite deviating statutes.
Companies can treat donations (assets, free services, etc.) from domestic business assets as business expenses for companies and institutions that have been directly and not insignificantly hurt by the Corona crisis or are involved in dealing with the Corona crisis (e.g. hospitals). In return, for the recipients the benefits are operating income.
Employees can donate part of their net wages if the employer passes the payment on to an institution entitled to receive donations. The donated portion is not shown in the respective wage tax certificate and the donation cannot be considered a private donation in addition. Members of the Supervisory Board can also waive a share, but this is not a donation, which is why half of the deduction prohibition remains in force.
Compensating losses that tax-privileged organizations can prove to have incurred from their business operations or asset management up to 31 December 2020 due to the effects of the Corona crisis with funds from the non-profit sector, profits from special purpose operations, income from asset management or profits from business operations is not detrimental to the tax privileges of the respective corporations.
Likewise, the BMF-circular allows tax-privileged organizations to obtain relief in the event of voluntary increase of the short-time allowance and the continued payment of the flat-rate allowances for volunteers or trainers, even though it is at least temporarily impossible to carry out the activity due to the Corona crisis.
If the benefits are gifts, tax exemptions can be granted pursuant to § 13 ErbStG, given the appropriate conditions.
Promotion of consulting services for SMEs and freelancers
Since 3 April 2020, small and medium-sized enterprises (SMEs) affected by corona, including freelancers, have been able to apply for a grant for certain consultancy services, following an amendment to the Directive on the Promotion of Business Expertise. Business and economic consultancy services, etc., companies whose assets are subject to insolvency proceedings or non-profit enterprises are not eligible for the subsidy. The Federal Office of Economics and Export Control (BAFA) is responsible for implementing the program. Funding is available for general consultancy services on all economic, financial, personnel and organizational questions of corporate management as well as for some special consultancy topics. The companies concerned will receive a grant of 100%, up to a maximum of EUR 4,000, of eligible invoiced consultancy costs.
You can find all further information on how to apply or other topics in detail here.
Draft of the Corona Tax Assistance Act
On 6 May 2020, the German government adopted a draft law on the implementation of tax aid measures to overcome the Corona crisis. Among other things, the draft contains the following measures:
- The VAT rate for restaurant and catering services will be reduced to 7% from 1 July 2020 until 30 June 2021. Beverages will continue to be taxed at 19 % VAT, unless beverages are already taxed at a preferential rate.
- The transitional regulation in § 27 UStG on the turnover taxation of legal entities under public law concerning § 2b UStG is extended until 31 December 2022.
- In accordance with the treatment under social security law, employer contributions to short-time working and seasonal short-time working allowances are tax-exempt up to 80% of the difference between the target and actual remuneration for the wage payment periods March to December 2020.
- In § 17 sub-section 2 sentence 4 UmwG it was temporarily regulated for the admissibility of the registration of a merger (and via § 125 UmwG also of a demerger), that it is sufficient if the balance sheet to be used as a basis was drawn up on a reference date not more than twelve (previously: eight) months before the registration. With corresponding amendments to the Reorganisation Tax Act, a synchronisation of the changes under civil law with the tax regulations for changes in legal form is to be achieved. The tax retroactive period will thus also be extended temporarily if the application for registration or the conclusion of the transfer agreement is made in 2020.
According to reports, the law is to be discussed in the Bundestag as early as week 20 in the first reading, followed by the second and third readings in week 22, so that it can be passed by the Bundesrat as early as June 2020.
Tax treatment of short-time working allowance
Short-time working allowance is a tax-free wage replacement benefit, comparable to sickness or parental benefits. Although such benefits are tax-free, they do require the submission of an income tax return because they are subject to the so-called progression proviso (Progressionsvorbehalt). The tax-free income is included in the calculation of the tax rate, which means that the individual tax rate increases due to the progressive tax rate. This rate is applied to the remaining income, which may result in additional tax payments for the taxpayer. We would like to draw the attention of all wage-replacement benefit recipients to these tax consequences.
Further explanations and contact persons relating to the topic of short-time work compensation and its related legal issues can be found on our website.