On May 6, 2020, the Federal Government launched additional tax relief measures to improve the liquidity of the companies and employees affected by the COVID 19 pandemic and to grant tax relief. The draft law is now to be brought to the Bundestag promptly and dealt with swiftly.

The planned measures are relevant for the following taxpayers:

• Companies that carry out certain conversion measures (change of form; incorporation of parts of the company) this year;
• Legal entities under public law;
• Employers who provide short-time allowance grants to their employees;
• Employees who receive top-up payments for short-time benefits from their employer;
• Companies in the catering trade (in particular: restaurants, restaurants, but also catering companies, food retailers, bakeries and butchers).

The following, temporary, regulations have been proposed by the Federal Government:

• Extension of the tax retroactive periods for certain conversion measures : The maximum time limit for the change of form as well as the incorporation of parts of the company should temporarily be 12 (instead of previously: 8) months.
• Extension of the transition period for the application of Section 2b UStG : Legal entities under public law should have until December 31, 2022 (instead of 31.12.2020) to adjust their VAT-related matters to the requirements of Section 2b UStG.
• Tax relief for short-time working benefits : Top-up payments by the employer for short-time working benefits should remain tax-free under certain conditions.
• Lower VAT rate : The reduced VAT rate of 7% (instead of 19% previously) should apply to restaurant and catering services provided.

BACKGROUND

The measures decided by the cabinet have the following background:

1. Extension of the retroactive tax periods for certain conversion measures:

In the event of a change of legal form from a corporation to a partnership, there is a maximum period for the balance sheet to be drawn up. This currently states that the balance sheet date may not be more than 8 months before the change in form for registration in a public register.

A corresponding maximum period for the preparation of the balance sheets also applies to the transfer of parts of a company to a corporation or cooperative.

What's new?

• This maximum period is now to be extended by 4 months. The balance sheet may therefore be drawn up on a key date 12 months before the registration.
• This means that companies that undertake a corresponding conversion measure in 2020 have a little more time (12 instead of 8 months) to complete the steps required for the conversion measure.
• The proposed extension of the deadline serves to synchronize the extension of the deadline already granted for divisions and mergers in the course of the COVID 19 pandemic, cf. the law on measures in corporate, cooperative, association, foundation and residential property law to combat the effects of COVID-19 the part of the law to mitigate the consequences of the pandemic of COVID-19 in civil, bankruptcy and criminal procedural law of 27 March 2020 (Federal Law Gazette I p. 569) (COVID 19 Act).

What needs to be considered?

• The extension of the maximum period is limited to registrations and degrees in 2020. The application period can be extended by a maximum of one further year by means of a statutory regulation.

2. Extension of the transition period for the application of § 2b UStG:

Public services are generally subject to sales tax due to the regulation of § 2b UStG that came into force on 01.01.2016. According to this regulation, a derogation only applies if the legal person under public law acts within the framework of public authority and the non-taxation does not result in any major distortions of competition. Until December 31, 2016, however, it was possible to declare once to the tax office that the (old) regulation of Section 2 (3) UStG should continue to apply to all services performed after December 31, 2016 and before January 1, 2021.

What's new?

• This transition period has now been extended for another two years.

What needs to be considered?

• Legal entities under public law now have until December 31, 2022 to adjust their VAT-related matters to the requirements of § 2b UStG.
• According to the federal government, the EU Commission is aware of the planned extension of the transitional arrangement and will not object to it.

3. Tax relief for short-time work benefits:

Many companies have already had to introduce short-time working due to the COVID-19 pandemic (for short-time working, see our Client Alert dated 25.03.2020)

For employees, short-time work basically means a reduction in monthly wages.

However, employers can - voluntarily or on the basis of a collective agreement - provide grants for short-time allowance or seasonal short-time allowance. According to the current legal situation, such top-up amounts are taxable wages.

What's new?

• The top-up amount paid by the employer should in future be tax-free if the top-up amount and the short-time allowance together amount to a maximum of 80% of the lost earnings.
• For the employee, this means that corresponding payments from the employer can be received undiminished, ie without deductions from income tax and social security law.

What needs to be considered?

• The employer should observe the 80% rule when granting the grants. If this is not exceeded, the grant is tax-free.
• However, the grant must be included in the progression reservation and entered in the electronic employment tax certificate for the calendar year 2020 (under number 15).
• The tax exemption only applies to grants that are paid between March 1, 2020 and December 31, 2020.

4. Lower VAT rate

Up to now, companies in the catering industry have generally had to subject the sales tax to the regular VAT rate (19%) of food that is offered for consumption on site (“in-house services”). In contrast, the reduced tax rate (7%) applies to out-of-home sales of food ("to-go").

What's new?

• The tax rate for restaurant and catering services is to be reduced from 19% to 7%.

What needs to be considered?

• This reduced tax rate does not apply to the delivery of beverages. This tax is still subject to the standard tax rate (with the exception of certain milk products and power water).
• The lowering of the tax rate is limited to sales made from July 1st, 2020 to June 30th, 2021.

CONCLUSION AND OUTLOOK

The measures adopted by the cabinet are welcome. They supplement the already agreed “protective shield for employees and companies” (read also our Client Alert from March 18th, 2020) and lead to tax relief, especially in the area of ​​catering and for companies and employees who are affected by short-time work.

These regulations must now be implemented promptly. According to reports, the legislative decision of the Bundestag should take place in the 22nd calendar week. The approval of the Federal Council is currently scheduled for June 5, 2020.

In the meantime, companies in the catering industry should check whether their checkout systems may need to be changed and appropriate precautions should be taken.

Employers who have already made allowances for short-time work benefits and who have deducted income tax should check whether a correction is still possible.

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