A comprehensive and simplified loss carryback for income and corporation tax from 2020 to 2019 was adopted on 29 June 2020 within the second Corona Tax Assistance Act. Instructions for the provisional loss carryback to 2019 were already issued in a letter from the Federal Ministry of Finance dated 24 April 2020. These instructions have now been concretised in a legally watertight manner and somewhat extended in the Income Tax Act. In contrast to the letter from the Federal Ministry of Finance dated 24 April 2020, a direct and substantial burden on the taxpayer due to the corona crisis is now no longer a prerequisite for provisional loss carryback.
The previous loss carrybacks that were deductible under section 10d of the Income Tax Act (EStG, Einkommensteuergesetz) were increased under the Tax Assistance Act for the 2020 and 2021 assessment periods to EUR 5,000,000.00 for corporations and to EUR 5,000,000.00/10,000,000.00 for individually or jointly assessed natural persons; possibilities for carrying back losses were hence considerably expanded.
As a ‘first aid’ to secure liquidity and in addition to the various tax deferrals, the tax authorities will accept applications by companies for a reduction to EUR 0.00 for advance payments on income and corporation tax. In this way, companies will be able to indicate that they do not expect to generate taxable income in 2020.
Once this ‘first aid’ is exhausted, the new law provides a ‘temporary loss carryback’ as an additional instrument: Under the current law, a loss carryback leads to a tax refund for the previous year when the tax assessment (notice) for the loss year is issued in that this loss is deducted from the taxable profit of the previous year. At present, companies could expect to be reimbursed from such loss carrybacks from 2020 at the earliest in spring 2021. The Tax Assistance Act brings forward the reimbursement date even though the 2020 loss year has not yet ended.
The liquidity relief provided by a ‘temporary loss carryback’ can be achieved as follows:
- Reduction of income or corporation tax prepayments for 2019
An application may be submitted to reduce the total amount of income for 2019 on which the assessment of the prepayments for 2019 is based either by a flat-rate amount of 30% or by a higher amount of a ‘provisional loss carryback’ for 2020 with proof being required if a higher reduction is claimed.
Advance payments for 2019 can still be changed until 31 March 2021!
- Application in the tax return for 2019
Upon application, the total amount of income in 2019 can be reduced in the 2019 tax assessment either by a flat-rate amount of 30% or by a higher amount of a ‘provisional loss carryback’ from 2020 with proof being required in a higher reduction is claimed. This application can be made in the tax return for 2019 or separately during the assessment procedure.
- Amendments to tax assessments already issued for 2019
Up until 1 August 2020, the legislator allows retroactive applications for the deduction of a ‘provisional loss carryback’ if tax assessments for 2019 have already been issued and become final before 15 July 2020.
Any subsequent payments for 2019 (for instance, if a (higher) provisional loss carryback was proven during the advance payment procedure but the (lower) flat-rate provisional loss carryback was used in the assessment) will be deferred on request until one month after the tax for 2020 has been assessed.
- Assessment for 2020
The relief described above ends with the issuance of an assessment notice for 2020. If necessary, the ‘provisional loss carryback’ will then be replaced by the actual one – in which case the previous legal situation will apply unchanged.
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