Tax-related activities in times of corona

The COVID-19 pandemic has affected the economy enormously. In some industries, the negative effects have reached dimensions threatening the existence of businesses. In response to the particular the strains on liquidity, tax tools can be applied. To name just a few:

• Reduction or suspension of the ongoing tax prepayments or recovery of previously made prepayments
• Repayment of the 2020 special value-added tax (VAT) prepayments in cases of permanent extension of the filing deadline
• Suspension of imminent tax payments
• Abatement of late payment penalties
• No levy of execution

In the short term, adjustments of tax prepayments may have a positive effect on the liquidity situation. This is a well-known tool which has proved successful and which can therefore be applied immediately. It includes income tax, corporate income tax and trade tax prepayments. The advantage is that in contrast to bridge loans the effect on liquidity is not only of a temporary nature in case later on the results of operations match the forecast amounts. Where losses are forecasted for 2020, the related loss carryback will reduce prepayments as may have been made for 2019.

A prerequisite for the adjustment of prepayments is a reduction application to be filed with the local tax office. Any actually incurred economic damage does not need to be proved in detail. Some German states have made simplified forms available for such applications. In the joint statement, the Federal Minister for Finance, Olaf Scholz, and of the Federal Minister for Economic Affairs and Energy, Peter Altmaier, dated 13 March 2020 announced that "tax prepayments can be reduced quickly and straightforwardly". Prepayments may be reduced to zero euro; prepayments as may have been made previously may be returned.

Additionally, the deferment of imminent tax payments – in particular VAT prepayments – is an option. Here, an application needs to be filed with the tax office or with the municipality, as a rule, in relation to trade tax. Affected businesses will currently not be charged any interest on deferred tax amounts. Grounds have to be provided in the applications for deferment, i.e. businesses have to provide supporting information that in their current liquidity situation the payment of taxes would result in considerable hardship. In particular, reference should be made to the COVID-19 crisis as the trigger and to the specific effects, such as closed shops, cancellation of events or cancellation of orders. The fiscal authorities made new application forms available with a number of related simplifications and apply generous standards to affected businesses.

Some German states return previously made 2020 special VAT prepayments in cases of permanent extension of the filing deadline, so that this will practically lead to a VAT deferment until the 12/2020 self-assessed VAT returns are filed. This can also be applied in the very short term using the available tools.

For VAT it is furthermore important that if there are unpaid tax dues, VAT previously declared and paid may be adjusted in the self-assessment period in which the non-payment or partial non-payment by a customer is certain or very likely. Should the customer pay unexpectedly at a later point in time, another adjustment needs to be filed.

Please note that the general duty to file e.g. self-assessed VAT returns or payroll tax returns in a timely manner remains unaffected thereby. Should operational procedures be severely impaired due to the quarantine measures, applications for extension of the filing deadline may be filed.

It is currently not possible to defer withholding tax payments, in particular payroll tax. The further development needs to be seen.

We recommend affected businesses contacting their local tax office as early as possible. If extensions of deadlines and reductions of prepayments are applied for in a timely manner, liquidity shortages due to pending tax payments can be avoided or delayed. We will be pleased to assist you with the preparation of the necessary applications in order to uphold your interests. Feel free to contact us.