German fiscal authorities respond to corona pandemic by offering tax relief for affected companies
*****Update of 6 April 2020: Additional tax measures relating to Covid-19*****
In view of the ongoing protective measures against the spread of Covid-19 and its economic effects, the Federal Ministry of Finance (BMF) and some German federal states have announced additional tax measures:
Deadline extensions for the filing of wage tax returns: In order to provide companies with additional liquidity, employers in the German federal states of North Rhine-Westphalia (NRW) and Bavaria can now extend the deadline for the filing of wage tax returns to be submitted by 10 April 2020 upon application for up to two months.
Additional measures of the German federal states: In some cases, the German federal states also grant tax measures in form of deadline extensions or the reduction or refund of special advance payments of value added tax. The specific measures applicable in each German federal state have to be examined on a case-by-case basis.
Tax-free special benefits: The BMF announced in a press release that special payments of €1,500 can be grant to employees tax-free or as benefits in kind in recognition in the coronavirus crisis. This requires, inter alia, that such special payment is made between 1 March 2020 and 31 December 2020 and in addition to the wages owed in any case. This relief also applies to social insurance.
Special regulations for cross-border commuters: Working from home as recommended by the health authorities may possibly lead to the number of days on which the actual country of work is not visited by a cross-border commuter exceeding the number of days stipulated in double taxation agreements (e.g. with Luxembourg, the Netherlands and Austria). Under certain circumstances, this may result in a switch or change in the distribution of taxation rights to the detriment of the cross-border commuter. In order to prevent this, the BMF is seeking temporary special arrangements under bilateral consultation agreements. According to a press release, days spent working from home due to Covid-19 should be considered as working days spent in the contracting state where an employee would have been working without the measures to combat the Covid-19 pandemic. This rule is not intended to apply to days that would have been spent working from home or in a third country regardless of these measures, especially where an employee generally works from home anyway pursuant to the employment contract. The special regulations are intended to cease to apply as soon as the measures imposed as a result of the Covid-19 pandemic are lifted.
Support for start-ups: In addition to the existing support measures, according to a press release, the German government is planning a special package of measures for start-ups amounting to two billion euros, including:
- provision of short-term public funding for public venture capital investors at fund of funds and fund level (e.g. KfW Capital, European Investment Fund, High-Tech Gründerfonds, coparion), which can be used in co-investment with private investors for financing rounds of start-ups,
- takeover of defaulting fund investors by the fund of funds investors KfW Capital and European Investment Fund and
- facilitating venture capital and equity replacement financing for young start-ups without venture capital in the shareholder base or small SMEs.
***** Update of 19.03.2020 - Covid-19: Main types of tax relief at a glance *****
The buoyant economy in recent years means advance tax payments and the tax burden are currently high. The resulting outflow of liquidity affects in particular companies, busi-ness owners and freelancers during the Covid-19 pandemic, since turnover has collapsed as a result. Fiscal policymakers in Germany have responded to this in particular with the following tax policy measures set in motion as part a joint package of measures on 13 March 2020
- Deferral of tax payments due and becoming due;
- Reduction of ongoing advance tax payments;
- Waiving enforcement measures until 31 December 2020;
- Remission of some late-payment penalties.
In addition, the General Customs Directorate has been instructed to make allowances for taxpayers in the area of taxes administered by the customs administration (including en-ergy tax and aviation tax). The same applies to the Federal Central Tax Office with regard to insurance and turnover tax.
Germany’s Federal Ministry of Finance (BMF) and the federal states have already speci-fied some types of tax relief in their circular released (see BMF circular of 19 March 2020 and identical decrees by the federal states on 19 March 2020; both in German only):
- Requests for tax deferral (section 222 German Tax Code)
According to the BMF circular, taxpayers who are verifiably directly and not insignificantly affected can apply by the end of 2020, setting out the circumstances, to defer certain taxes due by then or which will become due. Deferral interest will normally be waived. Generally, economic losses due to Covid-19 must be clearly documented in detail and presented to the fiscal authorities. But the BMF has clarified in the present circumstances that requests are not to be rejected because taxpayers cannot prove in detail the value of the losses suffered, and that no strict requirements are to be imposed for checks on whether the conditions for deferral are in place. The first application forms, for example from the Bavarian tax authorities, reflect this and are greatly simplified. Applications for deferral of tax due from 2021 must (still) be justified on special grounds. Taxes covered by the BMF circular include income tax and corporate income tax. Withholding tax (e.g. payroll tax) is generally not covered. The municipalities normally decide on the deferral of trade tax. In this case we hope that as many municipality treasurers as possible follow the BMF’s lead.
It should be noted that tax deferrals do not eliminate taxation, but merely postpone the due dates of tax payments. However, they allow taxpayers to overcome liquidity constraints for at least a certain period of time.
- Requests for a reduction in advance tax payments (section 37 German Income Tax Act in conjunction with section 164 German Tax Code)
The aforementioned taxpayers may also submit applications for adjustment or re-duction of certain advance payments by the end of 2020, setting out their circum-stances. This concerns in particular the advance payments for income, corporate in-come and trade tax. Again, there are certain requirements for proof. However, here again, applications should not be rejected because taxpayers cannot provide detailed proof of the damage caused. Applications for adjustment of the advance payments relating to periods starting from 2021 (still) need to be justified on special grounds.
- Temporary waiver of enforcement measures and penalty payments
According to the BMF circular, the fiscal authorities are to waive enforcement measures (e.g. account pledging) for enforcement debtors who are directly and not insignificantly affected until 31 December 2020 regarding overdue taxes or taxes due by the end of 2020. Late payment penalties applied as of 31 December 2020 for these taxes from 19 March 2020 until 31 December 2020 are to be waived.
Note that these tax reductions will initially benefit only those directly affected. For those indirectly affected, the existing principles and, in short, stricter requirements for proof, will remain in place.
In addition to these normally request-based measures, companies, business owners and freelancers should also consider the following options:
- Applications for remission of taxes;
- Applications for deadline extensions, including for filing tax returns;
- Applications for deadline extensions and reinstatement to prior status, including in ongoing proceedings.
Given the current constraints on public life, there is the question of how taxpayers can contact the fiscal authorities. Some tax offices have already closed or are asking people to refrain from personal contact. In this case, enquiries should be made in writing or by telephone. Online access to services such as Elster or the Download Center remains fully available. Email communication is also possible, with due consideration of the security risks (the fiscal authorities of Bavaria, NRW, Hesse and Baden-Württemberg).
Also: Tax aspects of working from home
The cost of purchasing additional hardware (such as laptops, printers or mobile devices) as well as other investments related to home working may typically constitute an operat-ing expense for the employer (section 4(4) German Income Tax Act). If employees bear the costs of equipment, these can be declared as income-related expenses (section 9 German Income Tax Act) in their tax returns. If there is no other workspace available apart from a home office, expenditure of up to €1,250 may be included in the annual in-come tax return under certain conditions. It is currently unclear to what extent a tempo-rary closure of the employer’s premises due to Covid-19 would be recognised as tempo-rary ‘non-availability of another workplace’.
***** News from 18.03.2020 *****
Now that the World Health Organisation (WHO) has classified the spread of the corona-virus as a pandemic on 11 March 2020, more and more companies across the globe are asking themselves how far the coronavirus will affect their business and the economy as a whole in the short, medium and long term. The German fiscal authorities are announcing initial tax reliefs as a supportive measure to help avoid liquidity shortages.
Following the ministries of finance in some federal states, Germany’s Federal Ministry of Finance and Federal Ministry of Economic Affairs and Energy have now also announced tax relief to support the liquidity of affected companies, presenting a joint package of measures on 13 March 2020 which includes:
- simplified reduction of ongoing advance tax payments;
- rapid and straightforward deferral of tax payments due;
- temporarily waiving enforcement measures (such as account pledging) and late payment penalties until 31 December 2020 if the debtor of a due tax payment is di-rectly affected by the impact of the coronavirus.
In addition, the General Directorate of Customs has been instructed to make allowances for taxpayers in the area of taxes administered by the customs administration (including energy tax and aviation tax). The same applies to the Federal Central Tax Office with re-gard to insurance and value added tax (VAT).
Companies affected by the crisis are therefore advised (also by their local chambers of commerce and industry) to contact their ongoing tax advisors and quickly claim the im-mediate measures being offered under procedural tax law in order to prevent or mitigate liquidity shortages. Application forms can be found on the forms page of ELSTER. In addi-tion, the Bavarian State Tax Department has provided a simplified application form for the above-mentioned tax relief.
Regarding the reduction of ongoing tax advances, the next due dates are relevant:
- 15 May 2020 for advance payment of trade tax;
- 10 June 2020 for advance payments of income and corporate income tax.
To date, no other measures have been officially announced apart from the above measures. However, according to internal sources, a nationwide circular regarding tax relief in connection with the coronavirus pandemic is currently being drafted at the Federal Ministry of Finance. In connection with this, there may be further relief under tax procedural law (e.g. extensions of the deadlines for filing tax returns/tax registrations; remissions on grounds of fairness; applications for reinstatement; general migration to quarterly VAT return) added to the above-mentioned list of measures by the fiscal authorities. Until further notice, such measures can thus be implemented based on general principles as part of an individual assessment. In particular, it appears that in light of the work situation companies find themselves in at the moment, requests for deadline extensions are very likely to be granted.
Any questions? Please contact: Carsten Heinz, Georg Edelmann, Ulrike Sommer or Peter Scheuch
Practice Group: Tax & Private Clients