Corona: Taxes

The coronavirus pandemic has had a massive impact on many companies and self-employed individuals. At the moment, it is difficult to estimate the fallout this will have. To deal with the crisis, the federal and state governments are working at top speed to establish measures that will be effective in stabilising the German economy. Here, you’ll get a quick overview of everything that’s important for your business. We will be frequently updating this information for you. So, make sure to visit this page regularly. Just contact us if you have any questions.

Deferment of tax payments

Companies and self-employed individuals can apply with their tax office for an interest-free tax deferment until 31 December 2020. In that case, they will not be required to make tax payments that are due at this time or that will become due later this year. To qualify, the company must demonstrate that it has been directly and significantly affected by the consequences of the coronavirus pandemic and disclose its circumstances to the financial authorities. Although it is still unclear how long this deferment will remain in effect, we assume that the interest-free deferment period will extend until at least through 2020. The fiscal administration has not explicitly placed any strict requirements for verifying whether the conditions for a deferment are met. Companies merely need to show that they are directly affected and do not have to demonstrate in detail the amount damage suffered. Because tax payments are postponed, this improves the liquidity of the company or the self-employed individual.

However, this deferment does not apply to wage taxes. If wages are paid, then wage taxes will continue to be owed. If wages are reduced, fewer wage taxes will be owed. Wage-replacement benefits, such as short-time allowances, remain tax-free.

Adjustment of pre-payments

Companies and self-employed individuals can adjust the amount of their income tax and corporation tax pre-payments. The same applies to the measurement basis used to calculate trade tax pre-payments. To do so, taxpayers can apply with their tax office to have the measurement basis reduced if they expect to have lower income this year. According to the German Federal Ministry of Finance, tax pre-payments are to be reduced quickly and straightforwardly.

Suspension of enforcement measures

With regard to arrears as well as taxes that have become due by this point, enforcement is being suspended until the end of 2020. Late payment penalties that would normally be assessed during this period are being waived.

Tax audits

The fiscal administration of each state government decides about how its tax offices will continue to operate. As a rule, it can be assumed that tax offices will be closed to the public and that tax audits will be suspended. However, tax offices are to remain reachable by phone, post, and email, as well as online through the ELSTER portal.

With respect to the expiration of the assessment period in the case of tax audits, section 171 (4) sentence 1 of the German Fiscal Code (Abgabenordnung, AO) initially applies. The scope of section 171 (4) sentence 2 AO is probably inapplicable to interruptions of tax audits caused by the coronavirus. In addition, section 171 (1) AO likely pertains, which provides that the period for assessment shall not expire for as long as the tax assessment cannot be undertaken within the last six months of the period as a result of force majeure.

 

Deferment of social insurance contributions

According to a National Association of Statutory Health Insurance Funds (GKV) circular, social insurance contributions can also be deferred under certain conditions. However, compared with the relief afforded in connection with tax payments, the scope is quite narrowly drawn for social insurance contributions. We believe that the measures enacted by the federal government in this area will bring noticeable relief and enable companies to continue to pay social insurance contributions.

Companies can apply for deferment of contributions for March, April and May until the due date for the payment of contributions in June 2020. They will not be charged deferment interest, late penalties, or reminder fees.

In order to qualify for a deferment, a company must first show that it has made use of options for mitigating the situation, such a short-time working and other subsidies and credits. To demonstrate this, we believe it will normally be sufficient for the employer to provide a credible explanation that the company has suffered substantial financial damage as a result of the pandemic.

Contributions that the employer remits for voluntarily insured persons are also covered by the deferment options.

Social insurance audits

On 16 March 2020, the auditing service of the German Federation of Pension Insurers (Deutsche Rentenversicherung Bund) discontinued audits at the offices of employers and tax advisors. They now need submit only documents and data, particularly those for the purpose of electronically supported audits. This directive applies until further notice.

Time limits

As things stand today, there is not (yet) any relief planned in terms of time limits for filings and for meeting cooperation obligations. Therefore, if a time limit is about to expire, we recommend that you file for an extension sufficiently in advance of the deadline. If need be, you should contact your tax office.

In addition, a number of state governments have extended the filing deadlines for tax returns until the end of May 2020, to the extent that they relate to the 2018 tax year and are prepared by tax advisors. Late penalties will not be assessed in these cases. To do so, you need to contact your tax office here as well.

Accounting requirements as at 31 December 2019

If the now nearly global spread of the coronavirus has had any implications for accounting (e.g. unscheduled write-downs or creation of provisions), these might have to be recognised in the annual and consolidated financial statements prepared in accordance with German commercial law as at 31 December 2019, rather than in the financial statements for subsequent periods. However, this applies only if the causes and the resulting economic consequences of the coronavirus pandemic occurred before that date but first became known between the reporting date and the time the financial statements were completed.

In determining the effects that the coronavirus pandemic has on accounting, it must be taken into consideration that the spread of the virus is an ongoing process and not an event that can be tied to a specific point in time. In accordance with current findings, the first cases of infections in humans had already become known in early December 2019. However, at that time, the spread of the virus was still regionally limited. Infections first began to increase dramatically in January 2020, resulting in the current economic impact. Therefore, in the opinion of the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer, IDW), it should generally be assumed that the emergence of the coronavirus as a global threat is to be classified as a non-adjusting event that occurred after the reporting date. As a result, the consequences that the coronavirus pandemic has for accounting are first to be reflected in financial statements with reporting dates after 31 December 2019.


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