(Last update: 6 April)
In order to counteract the threatening economic consequences of coronavirus, the Federal Ministry of Finance [Bundesministerium der Finanzen, BMF] and the Federal Ministry for Economic Affairs and Energy [Bundesministerium für Wirtschaft und Energie, BMWi] already announced in a joint statement issued on Friday a package of measures to mitigate the impact, which already included tax deferrals, an adjustment of advance tax payments and a waiver of enforcement measures.
Now that various federal state finance ministries have already issued guidelines for the local tax offices, the BMF, in consultation with the federal states, has now published two letters on 19 March 2020, which are intended to centrally regulate the conditions for an interest-free tax deferral, the possibility of adjusting advance payments and refraining from enforcement measures.
- Tax measures to take account of the effects of coronavirus (only available in German)
- Trade tax measures to take account of the effects of the Coronavirus (only available in German)
This concretizes the catalog of tax measures of the Federal Government to secure liquidity for companies. In this context, companies that have been shown to be 'directly and significantly affected' by coronavirus are to benefit from the relief measures:
Tax deferrals: Should the collection of taxes due by 31 December 2020 represent a "considerable hardship", an application for deferral can be submitted to the tax office, through which tax payments can be postponed. The tax offices are being instructed not to make any (otherwise customary) high demands on the granting of these deferral applications. In this context, applications are not to be rejected on the sole ground that the damage caused cannot be quantified in terms of value. The charging of deferral interest is also going to be waived "as a rule". Whilst the sample form (only available in German) published by the Bavarian State Office for Taxes [Bayerisches Landesamt für Steuern] still mentioned an interest-free deferral of three months, the BMF letter does not contain any statement in this regard. Insofar, it can be assumed that a longer deferral could also come into consideration. Nevertheless, we would recommend adhering to the sample form as a guide for wording the application.
Adjustment of advance tax payments: If the plans for 2020 that now have to be adjusted should lead to lower - or even negative - tax revenues than those taken as the basis for the advance tax payments, according to the BMF letter, reductions are also to be possible in the same way and thus without a detailed individual case examination. Also with respect to the reduction of the advance tax payments, we recommend adhering to the sample form of the Bavarian State Office for Taxes or the Ministry of Finance for North-Rhine Westphalia and simultaneously documenting the updated plans / estimates. If a special advance payment has been made to achieve a so-called "permanent extension of the deadline" for the VAT, this can be refunded after submission of a "zero return" (individual federal states have already published separate instructions for this, e.g. NRW.
Waiver of enforcement measures: Enforcement measures (e.g. account seizures) or late payment surcharges for the late settlement of taxes due are going to be waived until the end of 2020. This requires separate notification to the responsible tax office.
It can be assumed that the measures are going to be implemented by the tax authorities throughout Germany with immediate effect. Please note that, although applications for reductions in advance payments of trade tax are processed by the tax offices, applications for the deferral and remission of trade tax must be addressed directly to the respective local authority. Many local authorities have also already announced that they intend to proceed "unbureaucratically" and to grant all the aid envisaged by the Federal Government. The same should also apply to taxes administered by the Federal Government and customs authorities (e.g. insurance tax, air transport tax).
Companies that are directly financially affected by coronavirus should therefore examine their options and update their planning figures for 2020 and make estimates where necessary. On this basis, companies can then contact the tax authorities in writing at short notice and apply for corresponding reductions or deferrals. A "retroactive" reduction of the advance payment of taxes on earnings (income, corporate income and trade tax) for the first quarter of 2020 can also be achieved, if necessary. Where applicable, a subsequent reduction of the 2019 advance payments can also be made, e.g. in view of a possible loss carryback after 2019.
In principle, corresponding deferral measures are also conceivable in the area of value added tax. To be borne in mind in this case, however, is that VAT payments are regularly only made on sales that have already taken place and thus often for remuneration that has already been received, and that the deferral of corresponding payments would expose the management to a considerable personal liability risk if the VAT cannot be paid at a later date. Such a deferral should therefore be considered carefully and only be practiced in exceptional cases.
Operational tax measures to protect liquidity in the area of value added tax
a) "Bring forward" VAT adjustments in the event of bad debts As soon as it is "certain" or it is "very likely" that a customer receivable will default, the VAT already paid for this can be adjusted. This requires "close monitoring" of the customer receivables (which is carried out in any event in such times) and sufficient documentation when adjusting the VAT. If, contrary to expectations, payments are received at a later date, a new adjustment must be made.
b) Accelerated input tax deduction: The examination of incoming invoices (material and formal) should be accelerated so that input tax can be deducted as quickly as possible.
Deferral of social security contributions
The German National Association of Statutory Health Insurance Funds [GKV-Spitzenverband] has also addressed enterprises affected by coronavirus in its statement dated 25 March 2020.
In support of these enterprises, the Association envisages providing the following assistance, which will initially be limited to the contribution months of March to May 2020:
- Simplified deferral of contributions on request: For a transitional period, the credible declaration of the employer that it has suffered considerable sales losses as a result of the pandemic will suffice as proof of the considerable hardship of a deduction of con-tributions. A deferral will initially be granted until the due date of the contributions for the month of June 2020 (26 June 2020). No interest will be charged on the deferrals either, and the provision of security is also being waived.
- The deferral agreement can additionally include contributions that were due before the aforementioned period of March to May 2020.
- Furthermore, contributions to be reimbursed at a later date in case of short-time work compensation will also be included in the deferral agreement, as a certain amount of lead time has to be taken into account for before the protective mechanisms take effect. In these cases, a deferral of payment is only possible until the short-time working compensation is granted.
- The simplified contribution deferrals are to be of an exclusively subordinate nature, however, and can only be used as a liquidity aid once all other measures of the various aid packages and support measures of the Federal Government have been exhausted. These include, in particular, the facilitation of short-time work and the subsi-dies and loans for which the Federal Ministry of Finance [Bundesministerium der Finanzen - BMF] and Federal Ministry for Economic Affairs and Energy [Bundesministerium für Wirtschaft und Energie - BMWi] are responsible.
- The application for a deferral does not have to be in a specific form and must be submitted to the health insurance companies as the competent offices for the deduction of social security contributions. If several health insurance companies are represented in an enterprise, a deferral application must be submitted to each of these health insurance companies.
- The Association has also published helpful FAQs (in German) on the simplified deferral procedure.
- Waiver of enforcement measures: In order to further relieve employers, dunning charges and late payment surcharges are being waived for the aforesaid period. In addition, if the employer is significantly impacted, enforcement measures shall be provisionally waived for the above-mentioned period for all contributions that are in arrears or fall due by this date.
NRW: Extension of the deadline for registering and deducting income taxes for March 2020
On 2 April 2020, the Ministry of Finance of North Rhine-Westphalia presented a further measure to secure liquidity. NRW companies affected by the corona crisis can apply for a two-month "deadline extension" of until 10 June 2020 for registering and deducting income taxes for the month of March 2020 or the first quarter of 2020. Click here for the press release.
The NRW Finance Ministry has made a corresponding application form available on its website. However, applicants must in turn state on the application form a reason that justifies the deadline extension (the example given is: “impairment of the liquidity situation through the corona crisis”), whereby the measure would appear to be aimed at companies that are directly affected. It is hoped that this measure will temporarily create additional liquidity for companies in a magnitude of over EUR 3 billion.
Although the legal implementation by the federal state of North Rhine-Westphalia may be somewhat unorthodox in terms of the legal systematics, employers directly affected may consider submitting a corresponding application. The Ministry of Finance points out that applicants will only receive a response in the event of a rejection and can otherwise assume tacit consent.
Even though the corona crisis creates additional opportunities here, this "deadline extension" for income tax should not be at the forefront of liquidity procurement. If the bridging measure ultimately is not sufficient to avoid a subsequent insolvency, the personal liability of the managing directors according to § 69 German Tax Code [Abgabenordnung - AO] is not automatically excluded. However, the liability criterion is at least a grossly negligent breach of duty. It is to be hoped that this criterion will not be viewed as strictly in the current situation as has been the decision-making practice of the jurisprudence to date. However, income tax remains a special case because it concerns ("third-party") money of the employee, which represents an advance payment on his tax liability. Companies submitting an application should in all events draw up a sufficiently detailed liquidity plan which takes into account the income tax for March at a later date.
Due to the special nature of income tax amounts as a kind of "fiduciary relationship", it is still unlikely that employers in other federal states will be able to defer these taxes. In particular cases of hardship, however, a kind of "de facto deferment" by means of a separate application for a stay of execution may come into consideration, as has also already been addressed by the Bavarian tax authorities in their sample form. Here too, however, this should not be at the forefront of liquidity procurement.
We would be pleased to support you with any further considerations you may have and to assist in contact with the tax authorities.