Update: Tax reductions in the corona crisis

German Federal Ministry of Finance takes a stand on tax reductions for companies encountering liquidity problems because of coronavirus

Many companies have made very good profits in previous years, and advance tax payments have been set accordingly by the tax authorities. Due to coronavirus and the resultant drops in sales and profits, companies are encountering liquidity problems. The tax authorities have realized that and promised tax liquidity support for such companies. A communication of the German Federal Ministry of Finance regarding this matter was issued on 19 March 2020. The measures cover the following 3 points:

Deferments

If the taxes are already due and cannot be paid due to lack of liquidity, it will become easier to defer them. That principally requires that the payment would constitute a considerable hardship for the company. Due to the impact of the coronavirus, the tax authorities are required not to impose strict requirements in this respect. Harmless means for the application that the occurred damage cannot be verified in terms of value. The Bavarian State Ministry of Economic Affairs, Regional Development and Energy has already made available a form of a Antrags zur Steuerstundung (application for tax deferment) on its website under the heading: Themen -> Wirtschaft und Standort -> Aktuelles: Coronavirus (Topics -> Economy and Business Location -> Current Events: Coronavirus). The imposition of interest can be dispensed until 31 December 2020. In any case, however, this is at the discretion of the competent tax office. The Bavarian State Ministry has already announced that it wants to forego the imposition of interest. Other federal states are also considering doing so.

Adjustments of advance payments

The advance payments can be adjusted easier as soon as it becomes evident that a company's revenues will decrease compared to the previous year. This, in particular, concerns the following kinds of taxes: income tax, corporate tax. As in the case of the deferment, the simplified procedure applies here, too. I.e. the damages occurred cannot be specifically verified in terms of value. If an advance payment should be adjusted for the period following 31 December 2020, these simplification rules will not apply. By a decree of federal states issued on 19 March 2020, the reduction shall also be applied to trade tax (re-determination of the trade tax value base).

Enforcement and late payment fines

Should a company be unable to pay the income tax or the corporate tax on time, late payment fines in the amount of 1 % for each commenced month of the delay will become due. However, if the aforementioned taxes cannot be paid in good time because of liquidity shortages due to coronavirus, imposing a late payment fine will be forgone. Enforcement measures by the tax authorities (e.g. attachment) and the establishment of late payment fines are suspended from 19 March 2020 until 31 December 2020. Up to now, the reduction does not apply to trade tax, as it is a municipal tax.

Jens Müller

Matthias Ohmer