Short-Time Working in Non-Profit Organisations - Impact on Non-Profit Status
In the case of non-profit organisations, a number of questions arise in connection with short-time work allowance. In addition to the economic and labour law aspects, the preservation of non-profit status must always be ensured. Otherwise this will lead to considerable additional tax payments, which represent a high economic burden with serious consequences. Although this issue was addressed in a communication from the German Ministry of Finance ("BMF") dated 9 April 2020 on tax measures to promote aid for people affected by the corona crisis, it is still not clear how this will be achieved. However, it raises new questions.
Does the introduction of short-time working adversely affect the non-profit status?
With short-time work, the extent of the loss of working hours is variable and can be up to 100 percent ("short-time work zero"). In this case, work is completely stopped for a temporary period. This could be contrary to the principle that the organisation's activities must be aimed at the fulfilment of the charitable purposes set out in the articles of association.
Non-profit organisations can, if the requirements are met, receive short-time work allowance on the merits (FAQ as of 16 April 2020 of the German Ministry of Labour and Social Affairs on short-time work allowance, p. 5). And this should as a rule not result in the loss of the non-profit status. The BMF communication of 9 April 2020 implicitly presupposes under No. VIII, 2. that the introduction of short-time working does not have an adverse effect on non-profit status.
And what about the increase in the form of a top up?
After it has been established that short-time working as such does not affect the non-profit status for tax purposes, the next step is to ask whether the employer should increase the short-time work allowance and what effects this would have.
For tax purposes, the following currently applies: If non-profit organisations top up the short-time work allowance for their own employees from their own funds up to a total of 80 percent of the previous remuneration, neither the use of funds for statutory purposes nor the marketability and appropriateness of the increase will be examined, provided that the increase is made uniformly for all employees (BMF communication of 9 April 2020).
Under the provisions of section 1 (1) sentence 1 no. 8 Social Security Compensation Directive (Sozialversicherungsentgeltverordnung, SvEV), however, the increase in short-time work allowance to a total of 80 percent of the net remuneration difference is non-contributory.
The regulations differ in the choice of words. This may have undesirable consequences: The BMF communication is not based on the net remuneration difference but on the "previous remuneration". This term is not legally defined and can have different interpretations. It therefore requires interpretation. "Previous remuneration" can mean (i) gross remuneration, (ii) net remuneration or (iii) net remuneration difference.
The term remuneration usually refers to gross remuneration (cf. section 14 (1) Fourth German Social Security Code. However, an increase to 80 percent of gross remuneration could result in the employee receiving more in the context of short-time working than in the context of regular work. The interpretation appears to be reasonable as a net remuneration difference, although it is further away from the actual wording. This would result in a desirable alignment of social security law and tax law. In addition, the government draft for a Law on the Implementation of Tax Aid Measures to Overcome the Corona Crisis of 6 May 2020 provides for a tax exemption for top-up amounts to the short-time work allowance which, together with the short-time work allowance, do not exceed 80 percent of the net remuneration difference.
However, until the Federal Ministry of Finance specifies this in more detail, there is a risk that top-up amounts based on social security law requirements will be classified as harmful. This leads to considerable financial and tax implications for your tax-privileged organisation. If you have any questions about the consequences for your organisation, we will be pleased to assist you.
Dr Karl-Dieter Müller
Lawyer, Tax Advisor