Changes to numerous tax regulations

The following amendment proposals in the draft government act are to be highlighted:

1.   Changes for companies

• Inclusion of non-arm’s length shareholder loans in the partial deduction requirement of Sec. 3c(2) of the German Income Tax Act (Einkommensteuergesetz - EStG) if the taxpayer holds or held a direct or indirect stake of more than 25% in the corporation (Sec. 3c(2) of the Draft Amended German Income Tax Act),
• Exemption from tax of “INVEST subsidies” for venture capital up to a maximum of 50,000 euros (Sec. 3 No. 71 of the Draft Amended German Income Tax Act (EStG-E)).

 2.   Changes for employers

• Increase of the tax-free allowance for non-cash benefits relating to company events from previously 110 euros to 150 euros
  (Sec. 19(1) No. 1a of the Draft Amended German Income Tax Act (EStG-E)),
• Changes for employers with respect to the contributions of the employee to the solvency margin which are not subject to wage tax (Sec. 19(1) No. 1a of the Draft Amended German Income Tax Act (EStG-E)),
• Tax exemption of payments made by the employer for short-term childcare up to a maximum of 600 euros annually and for certain payments assumed by the employer
  • for advising employees on childcare or the care of relatives or
  • for the arrangement of carers (Sec. 3 No. 34a of the Draft Amended German Income Tax Act (EStG-E)).

 3.   Changes to international tax law

• Restriction of the maximum tax credit for foreign taxes with respect to income tax to the average German income tax based on the tax rate on the foreign income (Sec. 34c(1) of the Draft Amended German Income Tax Act (EStG-E)),
• No change to tax credit for corporation tax (Sec. 26 of the Draft Amended German Corporation Tax Act (KStG-E)),
• Clarification of the definition of business relationship (Sec. 1(4) Draft Amended German Foreign Tax Act (AStG-E)),
• Extension of the interest-free payment deadline with respect to exit tax, e.g. in the event of changes to the double taxation treaty (Sec. 6(5) of the Draft Amended German Foreign Tax Act (AStG-E)).

 4.   Changes with respect to VAT

• Introduction of a quick reaction mechanism to reverse the tax liability for VAT (Sec. 13b(10) of the Draft Amended German VAT Act (UStG-E)),
• Obligation to file VAT returns for shelf companies and shell companies
  (Sec. 18(2) of the Draft Amended German VAT Act (UStG-E)),
• VAT exemption for certain dialysis centres (Sec. 4 No. 14 of the Draft Amended German VAT Act (UStG-E)).

 5.   Changes for private persons

• Increase of the eligible old-age pension provision expenses from currently 20,000 euros to 24,000 euros (sentence 1 of Sec. 10(3) of the Draft Amended German Income Tax Act (EStG-E)),
• Definition of first professional training with respect to tax recognition of expenses as income-related expenses or special expenses (sentence 2 of Sec. 9(6) of the Draft Amended German Income Tax Act (EStG-E)).

 6.   Changes to taxation procedure

• Notices to combat money laundering and the financing of terrorism (Sec.  31b of the Draft Amended German Fiscal Code (AO-E)),
• Retention of customs documents (Sec 147 of the Draft Amended German Fiscal Code (AO-E)),
• Equitable measures with respect to the assessment of trade tax rates (Sec. 184 of the Draft Amended German Fiscal Code (AO-E)),
• Changes regarding identification numbers, in particular with respect to their
  • use by third parties (sentence 1 of Sec. 139a(1) of the Draft Amended German Fiscal Code (AO-E)),
  • use for various notices (No. 3 in sentence 2 of Sec. 139b(2) of the Draft Amended German Fiscal Code (AO-E)),
  • use at group companies (No. 2 in sentence 4 of Sec. 139b(2) of the Draft Amended German Fiscal Code (AO-E)),
• Addition to the business identification number (B-ID No.) of a five-digit identifier (Sec. 139c (5a) of the Draft Amended German Fiscal Code (AO-E)).