Succession, Wealth and Foundations18.03.2022 Newsletter
Since the beginning of the Ukraine war, there is a huge sense of solidarity with the people there. Many NPOs are actively engaged. Private individuals and especially companies also want to actively help. With a BMF letter published yesterday, the German Federal Ministry of Finance (Bundesministerium der Finanzen - BMF) is now trying to remove some of the existing hurdles.
Yesterday afternoon, the BMF published a letter in response to the war in Ukraine and the humanitarian emergency. The BMF letter contains comprehensive regulations regarding the most important questions that are currently arising - especially for NPOs – regarding the provision of aid to the victims of the war. All regulations apply retroactively with effect as of 24 February 2022 - the date of the invasion of Ukraine - and (initially) until 31 December 2022. Some of the measures listed are already familiar from past crises. We have summarised the most important points below:
Simplified donation receipts
The BMF classifies the war in Ukraine as a so-called catastrophe within the meaning of Sec. 50 (4), (5) German Income Tax Implementing Ordinance (Einkommensteuer-Durchführungsverordnung - EStDV), which facilities the provision of the required donation receipts:
Regardless of the amount of the donation, a simplified donation receipt is sufficient for donations to support those harmed by the war in Ukraine that are paid into special accounts of domestic public legal entities, domestic public service institutions or officially recognised domestic welfare associations. Accordingly, the proof (required for the tax deductibility) can be provided by cash deposit receipts, bank statements, direct debit receipts or a corresponding online banking printout. Confirmation using the officially prescribed form can be dispensed with insofar.
The provision of proof has also been simplified in cases in which donations are first transferred via the account of a third party as trustee (e.g. an employer who collects donations from employees and then passes them on as a whole) and only then transferred to a domestic public legal entity, a domestic public service institution or a tax-exempt corporation, association of persons or estate. In this case, a donation receipt from the donation recipient is sufficient (note: a simplified donation receipt is not enough here), if the third party's account was managed as a trust account, the donation was transferred from there to its recipient and the latter was given a list of the individual donors and their respective share of the donated amount.
Fundraising, engagement, and further transfer of funds from tax-privileged corporations
Tax-privileged corporations are allowed to raise funds to support people harmed by the war (!) and consequently – with proper proof of expenditure - to pass these on to other tax-privileged corporations or even to use them themselves for the corresponding purposes, even if they themselves do not promote the purposes required for this according to their statutes (according to the BMF, above all for charitable purposes within the meaning of Sec. 53 German Fiscal Code [Abgabenordnung - AO]). This should apply - at least in terms of non-profit law - even if the statutes provide for the transfer of funds but restrict this to the company's own purposes.
Since, in essence, the BMF primarily considers the fulfilment of charitable purposes within the meaning of Sec. 53 Fiscal Code to be relevant, which in practice often leads to documentation problems in the case of aid related to foreign countries, it was decided to simplify the situation here as well: no proof of the (economic) neediness of the persons receiving aid is required. Insofar, the BMF refers to No. 12 of the Fiscal Code Application Decree [Anwendungserlass zur Abgabenordnung, AEAO] with regard to Sec. 53 Fiscal Code.
Consequently, the BMF also clarifies that existing funds that are not earmarked for any other purpose can also be used or transferred to other tax-privileged corporations without the existence of corresponding provisions in the statutes (e.g. regarding the pursuit of charitable purposes, Sec. 53 Fiscal Code). Likewise, personnel or premises can also be provided accordingly.
Provision of personnel, premises, material resources or other benefits by tax-privileged corporations
The BMF letter also allows tax-privileged corporations to provide, against payment, personnel, premises, material resources or other benefits in areas that are necessary in order to deal with the effects and consequences of the war in Ukraine and for this activity to be treated for tax purposes as a special-purpose business within the meaning of Sec. 65 Fiscal Code. This also includes the operation of facilities that provide refugees with aid, food and assistance. As a result, the classification as a special-purpose business means that the reduced VAT rate (or, depending on the constellation, a VAT exemption) can be claimed, and the income generated accrues to the tax-privileged corporation free of corporation tax.
The BMF is taking a new approach by making it possible for companies to offer direct aid. In addition to the usual donation options, the BMF has fortunately now decided to offer direct help to companies willing to provide support:
Expenses incurred to support those harmed by the war in Ukraine may be deducted as operating expenses, provided that the support can be attributed to the sponsoring. This enables two things in particular: first of all, companies can make donations to tax-privileged corporations and aid organisations virtually without limit (no limit on the deduction of operating expenses for sponsoring, as would be the case with the classic donation deduction). In addition, companies can also make donations (in the form of donations of efforts and donations in kind as well) directly to Ukraine, e.g. to organisations there, but also on their own initiative. The prerequisite for deducting operating expenses at the company level is that the support provided to the persons concerned also serves to safeguard or enhance the company's reputation. This requirement can be fulfilled quite easily by the company drawing the public’s attention to its support (e.g. on its homepage, on the internet and in print media, radio, television, etc.
Consequently, the BMF letter also provides for turnover tax measures. If companies provide goods and personnel for humanitarian purposes free of charge to aid organisations or facilities for refugees and for caring for the wounded, the taxation of a benefit in kind will be waived on grounds of fairness. If it was already clear when the benefits were received that they were to be passed on to such aid organisations and institutions, input tax may nevertheless be deducted (on grounds of fairness). The same also applies to the gratuitous provision of - possibly previously rented - living space (hotel rooms, vacation apartments, etc.) by companies.
Donations of wages and supervisory board remuneration
Employees may also provide support by waiving the payment of parts of their wages in favour of
- support to the employer for employees of the company (group) or employees of business partners harmed by the war in Ukraine, or
- a payment by the employer to a donation account of an institution or corporation entitled to receive donations within the meaning of Sec. 10b (1) sentence 2 German Income Tax Act.
These wage components are then disregarded in full in the determination of the taxable wage. A prerequisite for this is that the employer actually donates the wage components and documents this donation accordingly. As a rule, the donated wage must nevertheless be recorded in the payroll account (unless the employee expressly waives this in writing). The donated, tax-free wage components may not be taken into account again as a donation within the scope of the income tax return.
This likewise applies to supervisory board remuneration that is wholly or partially waived by the supervisory board member to the benefit of a donation recipient before it becomes due or is disbursed.
Donations from private individuals directly to Ukraine
The BMF letter does not offer any relief for donations made by private individuals directly to Ukraine. These are still fiscally problematic. Donations to charitable organisations in Ukraine (and thus countries outside the EU or EEA) cannot be deducted as special expenses according to Sec. 10b (1) of the German Income Tax Act within the scope of the private income tax return. Private donors wishing to provide support in the light of the current situation in Ukraine are therefore advised to donate to domestic tax-privileged organisations or to recognised domestic subdivisions of international aid organisations. This enables or facilitates the proof for deducting the donation within the scope of the special tax expense deduction.
Finally, the BMF letter also contains regulations with regard to public legal entities, for example, for the temporary (payment-based) accommodation of war refugees and the possibility of being assigned to the sphere of sovereign responsibility (instead of to a business of a commercial nature).
Our conclusion: welcome the contents of the BMF letter as well as the retroactive validity from day 1 of the conflict can expressly be welcomed. The coming weeks or months will show whether these measures may need to be extended in terms of their factual scope or duration. Should you have any questions regarding the BMF letter or other related details, or should you require any assistance in communicating with the tax authorities, please do not hesitate to contact us at any time.