[Update (18 May 2020) – 989th session of the Bundesrat on 15 May 2020
The Corona Tax Assistance Act was not passed at the last session of the Bundesrat. Although the Bundesrat welcomes all the measures envisaged, it still has specific requests for certain amendments to sec. 2b of the German VAT Act (UStG, Umsatzsteuergesetz) and to the short-time benefits. The aim is to create the legal basis for a possible decentralised recording of VAT taxation by individual organisational units of the federal and federal-state authorities and to improve the annual employment income tax return for short-time benefits.
A concrete timetable as to when the law, including the amendments requested by the Bundesrat, can be passed is not yet known.
However, the Bundesrat suggests that the following additional measures be examined:
- Improvement of loss offsetting by increasing the maximum amount of loss carry-back and by extending the carry-back period and suspending the minimum taxation on loss carry-back
- Improvement of depreciation conditions through the temporary reintroduction of the declining balance method of depreciation, accelerated depreciation of innovation assets of digitalisation relevance, raising the limit for immediate depreciation of low-value assets and extending the investment deduction amount and opening it up to intangible assets
- Quick and complete abolition of the solidarity surcharge
- Reduction of the overall tax burden for corporations from the current level of typically more than 30% to an internationally competitive level of 25%, for example, by partial crediting of trade tax against corporate income tax
- More attractive structuring of the preferential treatment of retained earnings for partnerships (preferential treatment of retained earnings) and introduction of an option for partnerships to be taxed as corporations
- Expansion of tax incentives for R&D by significantly increasing the volume of funding
- Reduction of the electricity tax to the minimum level permitted under Community law
- Extension of tax deductibility for craftsmen’s services and household-related services
as well as industry-related measures:
- Introduction of the reduced VAT rate for passenger transport by coach and bus and for events, unless the latter are already subject to the reduced rate
- Reduction of the beer tax burden for smaller breweries up to a total annual production of 200,000 hectolitres of beer in line with the pre-2004 scheme
- Suspension of air transport tax
The Bundesrat requests that appropriate measures be included in the announced fiscal investment programme to cope with the COVID-19 pandemic.]
On 6 May 2020, the government draft for the law on the implementation of fiscal assistance measures to cope with the corona crisis (Corona Tax Assistance Act) was published. It addresses the topics of sec. 2b UStG, the VAT rate in the catering industry, employer contributions to short-time benefits and the extension of the retroactive period for transformations.
Sec. 2b UStG
In our blog article dated 5 May 2020 (German version), we already commented on the extension of the option period for sec. 2b UStG.
Reduction of the VAT rate in the catering sector
The temporary reduction of the VAT rate in the catering sector was one of the topics of the night session of the Grand Coalition on 22 April 2020. As planned, the government bill provides for the VAT rate to be reduced from 19% to 7% for restaurant and catering services provided after 30 June 2020 and before 1 July 2021. As already expected, sales of beverages are expressly excluded from this.
The explanatory memorandum to the law emphasises that catering businesses, food retailers, bakeries and butchers, for example, also benefit from this measure in as far as they sell ready-to-eat meals.
Employer contributions to short-time benefits
In order to achieve synchronism with social security law, employer contributions to short-time benefits and seasonal short-time benefits are tax-exempt if, together with the short-time benefits, they do not exceed 80 percent of the difference between the target pay and the actual pay pursuant to sec. 106 of Volume III of the German Social Security Code (SGB III, Sozialgesetzbuch (SGB) Drittes Buch (III)).
This applies to subsidies relating to wage payment periods that begin after 29 February 2020 and end before 1 January 2021. Like short-time benefits, the tax-free subsidies are subject to the progression clause and must therefore be taken into account in the income tax assessment. The employer is obliged to report these amounts to the tax office in the electronic wage tax statement.
For information on social security contributions for short-time benefits, see our blog article dated 7 May 2020 (German version).
Cut-off date for transformations
As a result of the Act to Mitigate the Consequences of the COVID-19 Pandemic in Civil, Insolvency and Criminal Proceedings (Gesetz zur Abmilderung der Folgen der COVID-19-Pandemie im Zivil-, Insolvenz- und Strafverfahrensrecht), the cut-off date pursuant to sec. 17 (2) forth sentence of the Transformation Act (UmwG, Umwandlungsgesetz) was extended from eight to twelve months, among other things, on condition that applications for registration of a transformation in the relevant register are made in 2020. This is a purely company-law rule which only affects transformation tax law in cases of mergers, splitting and spin-offs of corporations.
In contrast, transformation tax law provides for separate eight-month periods in the event of a change in the legal form of a corporation to a partnership (sec. 9 third sentence of the Transformation Tax Law (UmwStG, Umwandlungssteuergesetz)) and for contributions in kind to corporations (sec. 20 (6) UmwStG). These cut-off dates are now also to be extended to twelve months in order to achieve synchronisation with the cut-off dates extended by the COVID‑19 Act.
The extension of the retroactive period applies to cases where the application for registration or the conclusion of the merger agreement is made in 2020. Furthermore, authorisation to issue an ordinance having the force of law is planned, whereby an extension of the temporary relief rule made possible under the COVID‑19 Act until 31 December 2021 at the latest can be implemented analogously in transformation tax law.
For more information, go to: