Germany: Legislative proposals to expand and extend tax relief; Phase 3 aid assistance program (COVID-19)
Germany: Proposals to expand and extend tax relief
Legislative proposals and existing programs are intended to provide tax relief or economic assistance in response to the coronavirus (COVID-19) pandemic.
Draft Act for a Third Coronavirus Tax Assistance Act
The governing coalition’s parliamentary groups on 9 February 2021 submitted a draft of a "third act to implement tax relief measures for coping with the coronavirus crisis" (Third Coronavirus Tax Assistance Act). The bill would allow for tax measures to further address the consequences of the pandemic and would be intended to boost domestic demand.
Other measures had previously been implemented through the First and Second Coronavirus Tax Assistance Acts.
The Third Coronavirus Tax Assistance Act includes in particular the following key points:
- Loss carryback: The tax loss carryback (for income and corporation tax) would be increased to €10 million or €20 million for joint assessment. The increase applies only for 2020 and 2021 (that is, for loss carrybacks from 2020 to 2021 and from 2019 to 2020. The Second Coronavirus Tax Assistance Act had already increased the amounts from an initial €1 million (€2 million for joint assessment) to €5 million (€10 million for joint assessment). The new increase applies also for the limits concerning the adjustment of advance payments for the 2019 assessment period and for the preliminary loss carryback for 2020. From the 2022 tax assessment period onwards, the upper limits will return to the prior amounts of €1 million and €2 million.
- Extension of the VAT rate reduction: The value added tax (VAT) rate would be reduced to 7% for restaurant and catering services (with the exception of beverages) until 31 December 2022 (from 30 June 2021). The First Coronavirus Tax Assistance Act had originally reduced the period from 1 July 2020 to 30 June 2021.
The draft act is expected to be introduced directly to the Bundestag by the coalition’s parliamentary groups, in an effort to expedite the legislative process (and for possible quick conclusion of the legislative procedures). The legislation would be expected to be effective on the day after its promulgation.
Coronavirus bridging assistance – Phase 3
The application for the Phase 3 of the coronavirus “bridging assistance” (Überbrückungshilfe) recently started. The bridging assistance is an aid program of the German Federal Ministry for Economic Affairs and Energy (BMWi) to secure the economic existence of enterprises that suffer significant sales losses due to COVID-19-related complete or partial closures or impositions.
In Phase 3 (eligibility period of November 2020 to June 2021), businesses and organisations from all sectors that have, among other criteria, an annual turnover of up to €750 million in 2020 (consolidated), can apply for bridging assistance (an increase or repeal of the turnover limitation is under discussion). Further requirements are:
- A domestic permanent establishment or a domestic registered office registered with a German tax office
- The activity was taken up before 1 May 2020
- The applicant was not already in difficulties on 31 December 2019 according to the EU definition
In the case of affiliated companies, only one of the affiliated companies may submit an application for all of the affiliated companies combined.
Applicants can claim bridging assistance Phase 3 for each month in the eligibility period in which they suffered a loss in turnover due to coronavirus of at least 30% in principle compared to the reference month in 2019. Eligible items are continuous fixed costs incurred during the eligibility period based on a contract or set by the authorities that cannot be changed unilaterally—e.g., rents and leases; interest; operational licence fees; insurance; expenses for essential repairs, maintenance or storage of assets and leased assets; subscriptions; expenses for electricity, water, heating, cleaning and hygiene measures and other fixed costs. Costs paid to affiliated companies are not eligible for assistance. Special provisions apply for certain sectors (travel sector, events and culture industry, retail and pyrotechnics sectors).
The assistance grants a non-repayable grant between 40% and 90% of the fixed costs, depending on the turnover loss in the respective month. The calculation is made for each month separately.
The maximum amount of assistance is €1.5 million per month and €3 million per month for affiliated companies. However, the maximum limits under state aid law must be observed.
There are several state aid regulations approved by the European Commission of relevance for the bridging assistance with different maximum amounts and different prerequisites. Depending on the applicability of the regulation(s), the Phase 3 of the coronavirus bridging assistance can amount up to €12 million in total. The maximum amounts of assistance can be claimed only once by affiliated companies as a whole.
- In the first step (application), fulfilment of the conditions for application and the amount of reimbursable fixed costs must be demonstrated with the assistance of a tax advisor or accountant.
- In the second step (final settlement), this must be proven with the assistance of a tax advisor or accountant.
- The deadline for application is 31 August 2021. The final settlement must be submitted by 30 June 2022 at the latest via a tax advisor or accountant. If the final settlement deviates from the turnover forecast in the application, grants paid in excess must be repaid or they are adjusted upwards retroactively.
Read a March 2021 report [PDF 353 KB] prepared by the KPMG member firm in Germany
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