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Coronavirus – Using tax to protect liquidity – Germany

  • Germany
  • Coronavirus
  • Coronavirus - Country overview
  • Coronavirus - Tax issues

31-03-2020

 

The German Federal Ministry of Finance („Bundesfinanzministerium“) has published a guideline on 19 March 2020 detailing tax measures to consider the impact of the Coronavirusvirus. The guideline does not establish a new legal basis, but rather provides guidance on how German tax authorities should at their discretion decide upon certain tax measures.

Tax deferrals and reduction of tax prepayments during coronavirus

The guidelines are also reflected in the forms that have been published by the German tax authorities so far. Those who seek to benefit from the tax relief measures during the coronavirus, without being directly affected by it, are at risk of receiving tax privileges they are not entitled to. Thus, if taxpayers want to benefit from the tax reliefs but are not sure whether they meet all requirements they should disclose all relevant information in order to avoid any unjustified tax advantage for which they may be penalized (tax fraud). The details are as follows:

Tax deferrals and reduction of tax pre-payments

  • tax deferral and reduction of tax prepayments are granted based on the guideline for German income tax (“Einkommensteuer”), corporate income tax („Körperschaftsteuer“)and trade tax („Gewerbesteuer“)
  • a tax deferral requires a considerable hardship for the taxpayer. The Federal Ministry of Finance assumes such considerable hardship, if the taxpayer can prove that he is directly and not insignificantly affected, whereby it is currently completely unclear what exactly is meant by this wording
  • the taxpayer must disclose his individual circumstances when applying for a tax deferral. In doing so, the lack of individual proof of the value of the damage incurred at the time of filing the application should not be detrimental
  • the application must be submitted by 31 December 2020 for taxes already due or payable by that date. Applications for deferral of taxes, which become due after 31 December 2020 and applications for adjustment of prepayments, which only concern periods after 31 December 2020 must be specially justified
  • the tax authorities should not impose any strict requirements when reviewing the conditions for tax deferrals; it should also generally be possible to waive the charging of interest on deferrals
  • no deferral is permitted for withholding taxes, such as withholding tax on investment income (“Kapitalertragsteuer”) and payroll tax, and for liability claims for which tax withholding amounts or taxes have already been accrued or collected by the taxpayer

Coronavirus: suspension of tax enforcement measures

In the case of taxpayers directly and not inconsiderably affected by the coronavirus crisis, the tax office shall refrain from taking enforcement measures until 31 December 2020 for all taxes in arrears or due by that date. In particular, the late payment fines for these taxes forfeited in the period from 19 March 2020 to 31 December 2020 shall be waived as of 31 December 2020.

Discretionary decision of the tax office in case of existing solvency

Under current law, the tax authorities may, at their discretion, defer tax claims wholly or partly if collection at maturity would cause considerable hardship to the taxpayer and the claim does not appear to be at risk due to the deferral.

At the time the application is submitted, coronavirus must be directly affecting the applicant. In the absence of any current announcements, it can be assumed that companies from the catering, hotel, tourism, event and leisure industry (e.g. cinemas, concert organisers, fitness studios), non-food retail, automotive manufacturers/suppliers are directly affected.

It is completely unclear which industries and companies will only be indirectly affected. It is also unclear under which conditions a taxpayer is affected to a not insignificant extent. If a comparison with other companies in the same or another industry is to be made, is a comparison year to be formed, does it depend on absolute amounts or the relative decline in turnover or profit? In any case, it is clear that a "simple" shock such as that suffered by virtually "everyone" will probably not suffice.

Obligation to provide evidence during Covid-19

In order to enable the tax office to make a correct assessment decision and to avoid the taxpayer exposing himself to the allegation of having presented the facts relevant for the tax deferral inappropriately, the taxpayer must specifically demonstrate that the timely payment of tax would lead to serious payment difficulties for him and that he cannot bridge these difficulties in any other way, e.g. by taking up a loan.

A deferral is only possible if the taxpayer's ability to pay is only temporarily reduced. It is, however, not possible to grant tax deferral  in the case of insolvency or over-indebtedness. When applying for a deferral, the liquidity and debt situation of the company must be examined and specified in detail.

Coronavirus: risk of subsequent interest payments

Currently, the tax authorities are expected to grant an interest-free deferral for a period of three months without further investigation. Nevertheless, a subsequent tax audit is to be expected. If it turns out that the requirements for granting the deferral have not been met, the deferred amount can be declared due immediately plus deferral interest of 6% p.a.

The current application forms also provide for the option of payment by instalments. How-ever,  if the taxpayer does not pay the instalments in the specified amount or on the specified date, the tax office can generally revoke the deferral with immediate effect, so that the tax payment falls due.

Risk of tax reduction or tax evasion

The complete and correct presentation of the facts and the individual circumstances is particularly important for applications for a reduction of tax prepayments: Incorrect information can lead to a tax offence in form of a reduction or evasion of tax, especially if the final tax payment is knowingly higher.

Seek practical tax advice during the coronavirus

Despite the time pressure, a careful examination and documentation of the applications is urgently required. The government is still bound by the legal situation and must also base the examination on this when granting tax relief.

Further links on using tax to protect liquidity during the coronavirus

BMF -Schreiben vom 19.3.2020

Forms for tax deferral applications and reduction of prepayments:

Bayern

Baden-Württemberg

Berlin

Brandenburg

Bremen

Hamburg

Hessen, Hessen 

Mecklenburg-Vorpommern

Nordrhein-Westfalen

Niedersachsen

Rheinland-Pfalz

Saarland

Sachsen

Sachsen-Anhalt (Pressemeldung)

Schleswig-Holstein (Informationsseite)

Thüringen

Generalzollamt