The Federal Council today approved the Corona Tax Assistance Act. Companies and employees who are affected by the COVID-19 pandemic are to be tax-relieved by the planned measures.

The Corona Tax Assistance Act specifically provides that

• Special payments by the employer of up to EUR 1,500 ("Corona bonus") remain tax-free;
• the deadlines for notification of cross-border tax arrangements can be extended by the Federal Ministry of Finance .

In addition, the law implements the federal government's proposals of May 6, 2020:

• The applicable to certain conversion measures tax reaction periods are from 8 to 12 months extended ;
• The transition period for the application of § 2b UStG is extended by 2 years (end of the transition period: December 31, 2022);
• Employer grants for short-time work benefits are tax-free ;
• The VAT rate for food in the catering and food industry is reduced to the reduced tax rate.

The Corona Tax Assistance Act is relevant for the following taxpayers:

• Employers who grant their employees subsidies for short-time working benefits or an additional payment (“Corona bonus”) due to the Corona crisis;
• Employees who receive subsidies for short-time work benefits or a corona bonus from their employer;
• Companies that are planning or have already carried out cross-border measures and therefore fall under the new reporting requirements for tax structuring (§§ 138d ff. Tax Code);
• Companies that carry out certain conversion measures (change of form; incorporation of parts of the company) this year;
• Legal entities under public law;
• Companies in the catering trade and the food industry.

BACKGROUND

Compared to the government bill of May 6, 2020 (see our Client Alert of May 7, 2020, the Corona Tax Assistance Act now contains two major innovations:

1. Corona bonus:

Aid and grants that employers pay to their employees against the background of the Corona crisis have been tax-free since April 9, 2020 under certain conditions. However, the requirements for such “corona bonuses” were only regulated in an administrative instruction.

What's new?

The Corona Tax Assistance Act now creates a legal basis for tax-free corona premiums. For this purpose, a new § 3 No. 11a EStG was inserted into the income tax law.

This leads to more legal certainty.

What needs to be considered?

• Employers can grant their employees tax-free special payments under the following conditions:
  
  They must be grants or benefits in kind,
  • because of the corona crisis,
  • in the period from 01.03. until December 31, 2020 and
  • in addition to the wages owed anyway,
  • as long as they do not exceed EUR 1,500.
• The 1,500 EUR is an allowance. This means that a corona premium granted of EUR 2,000 remains tax-free of EUR 1,500. The remaining EUR 500, on the other hand, are subject to tax and contributions.
• The tax-free benefits must be recorded in the salary account.
• Deferred compensation is not exempt from tax.
• Agreements on special payments that were made before 01.03.2020 without reference to the corona crisis cannot subsequently be converted into a tax-free corona premium. This applies, for example, to payments for which a provision has already been recognized in the balance sheet as of December 31, 2019.

2. Extension of the notification period for cross-border tax structuring:

Due to EU legal requirements, cross-border tax arrangements must be reported to the tax offices in the future. This also applies to older designs that were implemented for the first time after June 24th, 2018 and before July 1st, 2020.

The national legislature had already implemented these regulations into national law at the end of 2019 (§§ 138d ff. Tax Code).

Due to the effects of the Corona crisis, the EU Commission has meanwhile proposed to initially extend the deadlines for notifying cross-border tax structuring by three months (from July 1st to October 1st, 2020; or, for arrangements that have already been implemented in the past: from August 31 to November 30, 2020).

A new EU directive is currently being prepared.

What's new?

• The Federal Ministry of Finance is authorized to implement such an extension of the deadline in a BMF letter as soon as a corresponding EU directive has been issued.

What needs to be considered?

• The announcement of the new EU directive and the resulting BMF letter must now be awaited.
• Regardless of this, taxpayers concerned should take preparatory measures at the present time in order to be able to meet their reporting obligations on time.

3. Further tax relief:

The further, temporary, tax relief of the Corona Tax Assistance Act, especially the

• Extension of retroactive tax periods for certain conversion measures;
• Extension of the transition period for the application of § 2b UStG;
• Tax exemption for short-time allowance subsidies;
• Lowering the VAT rate for food;

correspond to the proposals of the government draft of May 6th, 2020.

Find out more about these measures in our Client Alert from May 7th, 2020.

CONCLUSION AND RECOMMENDED ACTION

The swift legal implementation of the Corona Tax Assistance Act is to be welcomed and, given the considerable economic impact of the Corona crisis, urgently required.

Together with the economic and future package decided on June 3, 2020 by the grand coalition, which promises further tax measures, such as in particular

• the expansion of the tax loss carryforward;
• an option model for corporation tax for partnerships;
• a temporary reduction in VAT from 19% to 16% or from 7% to 5%;
• a degressive depreciation for wear and tear (AfA) with a factor of 2.5 compared to the currently applicable AfA and a maximum of 25% per year for movable assets of fixed assets;

the legislator is countering the economic consequences of the COVID-19 pandemic and aims to improve the liquidity of affected companies and employees.

The cut in the value added tax rate for meals decided today is likely to have a particularly strong impact against the background of the economic and future package. Because for the period 01.07. until 31.12.2020 meals can then be served at 5% instead of 19% as before Companies in the catering and food industry should keep this in mind and, in particular, take appropriate precautions for converting their checkout systems.

Employers who want to grant their employees a corona bonus should take into account the tax exemption requirements of the new Section 3 No. 11a EStG. In case of doubt, the tax authorities should be contacted as soon as possible by way of a wage tax call.

The proposed postponement of the first notification of cross-border tax arrangements is also to be welcomed. Regardless of this, taxpayers should promptly check whether there are reporting requirements for cross-border tax structuring. Corresponding documentation should be prepared at this point in time.

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