Tax measures mitigate effects of the coronavirus crisis

The German government and federal states have taken far-reaching measures to mitigate the effects of the coronavirus crisis.

The tax authorities are granting taxpayers affected by the coronavirus crisis – under greatly eased conditions – different types of tax-related liquidity assistance; this includes in particular

  • reduction or reimbursement of tax prepayments,
  • deferral of tax payments without interest and
  • waiver of enforcement of overdue taxes and late payment penalties.

Although a condition for the granting of the relief is that taxpayers must prove that they are directly and not insignificantly impacted by the effects of the coronavirus crisis, it is however not necessary to provide detailed proof of this. The tax offices have been instructed not to impose harsh requirements when checking whether the conditions have been met. 

The relief applies in principle to taxes that are already due or will be due by 31 December 2020; subject to further requirements, tax prepayments for 2019 are also reduced upon request. Specific justification will be required for requests for deferral or adjustment of prepayments for the period after 31 December 2020. It remains to be seen whether and to what extent the tax authorities will also grant tax relief for the period after 31 December 2020.

The tax authorities are granting extensions of up to two months for the submission of wage tax returns upon request. However, the relief is in principle not granted for capital gains tax payments.

It should be noted that the above measures only constitute temporary liquidity assistance. Therefore, provision must in principle be made to ensure that the tax liabilities can be settled when the liquidity relief expires. Taxpayers shall in principle disclose to the responsible tax office in the event that the prerequisites for a granted liquidity relief subsequently cease to apply.

In addition to the aforementioned liquidity relief, inter alia, the following measures have been put into place:

During the period from 1 March to 31 December 2020, employers may, on account of the coronavirus crisis, grant their employees aid and support of up to an amount of EUR 1,500 tax-free in the form of allowances or benefits in kind, provided that these are paid in addition to the wages already owed.

The Federal Ministry of Finance has announced its intention to lay down temporary special regulations for cross-border commuters by means of bilateral consultation agreements with other countries in order to prevent an undesirable change in the right to impose tax due to home office activities; corresponding consultation agreements have already been concluded with Belgium, Luxembourg, the Netherlands and Austria.

In the area of investment tax law, the tax authorities have granted relief for the asset allocation of, for example, blended funds. In principle, they will not treat passive threshold violations between 1 March 2020 and 30 April 2020 in the case of investment funds as a material breach of the asset allocation rules.

Further legislation (Corona-Steuerhilfegesetz) provides additional tax relief. Employer’s contributions to short-time and seasonal short-time work compensation will be tax exempt, applicable for up to 80% of the difference between planned and actual remuneration. Tax retroactive periods in section 9 sentence 3 and section 20 (6) sentences 1 and 3 German Transformation Tax Act (Umwandlungssteuergesetz – UmwStG) will be extended to 12 months for transformations in 2020 in order to align with the retroactive period under section 17 (2) sentence 4 German Transformation Act (Umwandlungsgesetz – UmwG) that has already been extended in March 2020.

Furthermore, German government has recently announced a stimulus package involving several additional adjustments to corporate taxation, inter alia:

  • Reduction of VAT rates from 19% to 16% and from 7% to 5% respectively for the period from 1 July 2020 to 31 December 2020 (VAT rate on restaurant and catering services has already been reduced from 19% to 7% between 1 July 2020 and 30 June 2021 except for the provision of beverages);
  • Extension of loss carryback from EUR 1 million to EUR 5 million regarding losses incurred by single income tax filers and corporations in 2020 and 2021 (corporate income tax only, not for trade tax purposes); losses will be already usable in 2019, e.g. via special “Corona tax accrual” that has to be eliminated no later than by the end of 2022;
  • New declining-balance depreciation for moveable assets applicable in 2020 and 2021 (2.5 times higher than straight-line depreciation, maximum 25% p.a.);
  • Deferral of Import VAT payments from the 16th to the 26th day of the following month;
  • Increase of trade tax credit available for business income incurred by individuals (from factor 3.8 to factor 4.0 of trade tax base);
  • Option for partnerships to corporate taxation (details still to come);
  • Improvement of legislative framework for employee participation plans;
  • Increase of allowances regarding trade tax add-backs from EUR 100,000 to EUR 200,000.

A rapid legislative process is expected for most of the measures. The details of the envisaged amendments should be closely monitored.