Companies and taxpayers alike are experiencing massive liquidity shortages due to the far-reaching restrictions on the economy and on public life caused by the COVID-19 pandemic, or at least will be exposed to such a risk in the medium term. This forces them to examine, also in relation to taxes, how existing liquidity may be preserved or additional liquidity created. In addition, the question is how to deal with ongoing tax audits and what other procedural relief is available.
In coordination with the supreme tax authorities of the German states, the Federal Ministry of Finance on March 19, 2020 published a decree relating to taxes administered by state tax authorities on behalf of the federal government. Additionally, on the same day, the supreme tax authorities of the German states issued identical decrees containing measures on determining trade tax base amounts for the purposes of advance payments.
1. Adjustment of tax prepayments
Assessed tax advances (trade tax, corporate income tax and income tax, as well as value-added tax) should be reviewed. The tax authorities are instructed to make straightforward and quick adjustments upon request. Advance payments of trade tax are also to be adjusted by municipalities in the event of adjustments to the trade tax assessment base. In individual cases, it is advisable to contact the relevant municipalities directly.
Numerous German state supreme tax authorities already drafted simple application forms for the adjustment of advance payments and made these forms available on their websites.
2. Deferral of tax payments
Upon application and to the extent that tax payments cannot be made due to the effects of the COVID-19 pandemic, tax payments due are generally supposed to be deferred without interest until December 31, 2020. Although it needs to be shown that the company or taxpayer is directly affected, it is not necessary to provide detailed evidence of the amount of the loss incurred. There will be no tax deferrals for withholding taxes, in particular wage tax and capital gains tax. For those, deferrals of enforcement might be considered in individual cases.
3. Suspension of enforcement measures
The tax authorities have been instructed to suspend the enforcement of overdue tax debts (corporate income tax and income tax) until December 31, 2020. Late payment surcharges incurred as a matter of law shall be waived. Where trade tax debts are concerned, the respective municipality will need to be consulted, as the measures taken by the federal and state governments have no effect on trade tax.
4. Energy tax, air transport tax, insurance tax, and value-added tax, to the extent to which the Federal Central Tax Office is competent
The measures to adjust tax advances, defer tax payments, and suspend enforcement measures (see above) are to be implemented accordingly by the customs administration and the Federal Central Tax Office. This applies, among other things, to energy tax and air transport tax, administered by the customs administration, and appropriately to the Federal Central Tax Office, to the extent to which insurance tax and value-added tax administered by it are affected.
5. Deadline extension for filing tax returns
It should be agreed with the assessment revenue offices whether extraordinary extensions of deadlines may be granted, if and to the extent required resources may not be available to companies and tax advisors due to the COVID-19 pandemic.
6. Accelerated filing of tax returns to obtain tax refunds
In each individual case, it will need to be examined whether taxpayers may expect tax refunds, e.g., for previous years. In these cases, the filing of tax returns should be accelerated. It should also be examined whether tax losses may be carried back to the previous year for corporate tax or income tax purposes. For trade tax purposes, however, losses may not be carried back.
The same will also apply to existing claims for VAT refunds due to input VAT surpluses. In individual cases, an early filing of advance returns for value-added tax may be useful from a liquidity point of view.
7. Reimbursement of special advance payments of value-added tax in case of permanent extension
Businesses which applied for and received a permanent extension for VAT filing purposes must make special annual VAT advance payments. These payments were regularly made to the revenue office by the respective businesses in February. Applications for reimbursement of this special advance payment may now be submitted. As an example, the tax authorities of North Rhine-Westphalia and the Hessian Ministry of Finance pointed out such a refund option. Even if not all German states supreme tax authorities have yet published similar announcements, the possibility of a refund should be examined in each case and applied for where available.
8. General remarks
The tax authorities are currently distinguishing between directly and indirectly affected companies and individuals. With respect to those who are only indirectly affected, the general rules should continue to apply. At present, it is not clear or foreseeable how this distinction will be made in individual cases and implemented by the tax authorities. It is hoped that the respective competent tax authority will act with a sense of proportion at this point. In view of this special and unprecedented situation, it is to be expected that this will in fact be handled accordingly. Irrespective thereof, it is important that facts and circumstances continue to be accurately documented to be able to demonstrate the conditions of eligibility in subsequent audits. Current deadlines should also be observed and extensions of deadlines should be expressly requested.
It is expected that tax authorities will refrain from on-site audits until further notice and will suspend ongoing audits or continue them exclusively from their offices.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.