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Coronavirus - Requirements for granting tax relief - Germany

  • Germany
  • Tax planning and consultancy

03-04-2020

Corona tax deferrals in the light of the applicable law

Since the publication of the guideline from the German Federal Ministry of Finance ("Bundesfinanzministerium", BMF) published 19 March 2020 (cf. our newsletter of 31.03.2020), the interpretation of the requirements for corona relief has developed just as dynamically as the spread of the corona-virus itself: It is becoming increasingly clear that the Corona tax relief is not a tax gift that is available to everyone and can be applied for by everyone, even if everyone and every company is affected by the effects of the Corona crisis in some way or another. Even during the current crisis caused by the corona-virus, the tax deferral is still subject to the conditions laid down in the German general tax code ("Abgabenordnung") for a tax deferral: This means that a tax deferral can only be considered if (i) the payment of tax when due represents a considerable hardship for the taxpayer and (ii) the tax claim does not appear to be at risk from the deferral. However, even if both of these conditions are met, there is no entitlement to a tax deferral, but only a right to proper exercise of discretion by the tax authority. In our opinion, the statements contained in the BMF guideline with regard to the granting of a tax deferral should be classified as follows:

Credibility of the "immediate impact" of the Corona crisis...

With the reference that taxpayers can file an application for a tax deferral if they are evidently directly and not insignificantly affected by the Corona crisis, the tax authorities have undertaken an attempt to define a typifying standard for the tax authorities for the assessment of considerable hardship, i.e. to specify and categorize the element of the offence of considerable hardship.

In principle, the prerequisite for a tax deferral is that the taxpayer can prove that he is solvent, because in the event of insolvency or even bankruptcy, no tax deferral can be granted. The criteria of direct and not inconsiderable affectedness by the corona virus can therefore only be used to determine whether or not the taxpayer may be in financial difficulties. It is therefore to be assumed that the taxpayer, in addition to being directly and not insignificantly affected, must also demonstrate his (general) solvency to the tax office.

... by means of sector-specific differentiation of the „direct impact”

It is currently still unclear when the tax authorities will affirm direct affectedness by the corona crisis. However, a statement published a few days ago by the Munich Chamber of Tax Consultants suggests that the direct effect must be assessed on the basis of a sector-specific standard. We consider this approach to be appropriate, since - apart from individual cases - we believe that the effects of the corona crisis can be determined by means of a sector-specific analysis. As there will be a flood of applications to be processed in the next few days and weeks, we consider this approach to be target-oriented and justified in substance, as the effects of the corona crisis can be differentiated by sector, even if there are certainly justified exceptions. The Institute of Public Auditors in Germany (IDW) assumes that the taxpayer is directly affected if he is the addressee of a measure imposed by the state (e.g. closure of a business or a ban on activities under the Infection Protection Act). Due to the existing legal ambiguities in the interpretation of immediacy, the IDW even proposes to waive the immediacy requirement altogether and to focus only on the economic effects on the companies. In our opinion, this would probably go too far and would also be problematic under constitutional law with regard to the principle of uniformity of taxation.

Lack of clarity of the benchmark for "not only insignificant affectedness"

The criterion of not only insignificant affectedness also poses problems. First of all, it is questionable which standard of comparison can be taken as a basis for the examination of the "not only insignificant" degree of affectedness: The comparison with other companies in general? Or with other companies in the same industry in the current situation?

Furthermore, an individual consideration of the economic situation before and during the crisis could also be considered as a standard of comparison. In our opinion, also with regard to the concept of "not inconsiderable impact", it is to be expected that a more generalised view will be taken and that the economic disadvantages resulting for the respective industry will be classified by the tax authorities. Within the framework of this typification, however, a further differentiation is likely to be made in order to distinguish between the "only" affected and the "not only insignificantly affected" enterprises. Possible criteria for differentiation could be, for example: general seasonal fluctuations, availability of alternative distribution channels, discontinuation or postponement of consumption, possibilities for adjusting the business model, etc.

No binding effect for trade tax purposes

Finally, it should be noted that the above considerations from the BMF guideline apply to the federal and state tax authorities, i.e. they relate to income and corporate income tax deferrals. However, there is no obligation for the municipalities which are responsible for levying trade tax. In this respect, it cannot be ruled out that other criteria may be used as a basis for granting Corona trade tax relief than for income and corporation tax purposes.

Conclusion

We assume that the tax authorities will not be able to provide clear guidelines in the near future and that it is therefore left to the taxpayer to make the deferral conditions as clear as possible on the basis of his individual circumstances. However, whether the deferral is finally granted is at the sole discretion of the respective tax office.

We recommend that all entrepreneurs concerned should explain the requirements of the tax deferral as precisely as possible on the basis of the aforementioned guidelines in order to obtain a tax deferral as quickly and easily as possible.