On 3 June 2020, the coalition committee of the governing parties in Germany adopted a comprehensive economic stimulus package worth over 130 billion euros to combat the economic consequences of the Corona (Covid-19) crisis. This programme is outlined in a key points paper with 57 individual measures. In the following, we would like to present the key points of this economic stimulus package and in particular the planned tax measures. In addition to selective economic stimulus measures, some of which are well-intentioned (in particular the capping of social security contributions to 40% of gross salary and improvements in depreciation and the utilisation of losses), the Federal Government has been particularly well-intentioned in its reduction of VAT rates, but in our opinion has done a disservice to a large number of companies and taxpayers. Certainly the demand in the private sector for cost-intensive purchases (e.g. private cars, furniture or electrical appliances) will increase, but whether the VAT rate reductions in shops of daily life (purchases of goods, fuel costs, household expenses, etc.) will be passed on to the end consumers is doubtful in our opinion. Similarly, the “child bonus” will probably only have an effect on taxable income below €50,000 per person, so that many taxpayers will not benefit from any relief on this point either. In the following, we will first outline the key points of the economic stimulus package.
Economic stimulus package – ideas of the governing coalition of 03.06.2020
In the aftermath of the Corona (Covid-19) crisis, the coalition committee has decided to support the economy with a program of 130 billion euros. Legally, this is only a proposal of the Federal Government which has to be approved by the federal parliament and federal council and will only become effective after it has been signed by the Federal President. It will probably take at least another 2 weeks until the measure becomes law. It is therefore not to be excluded in the experience of the parliamentary practice that between the ideas of the coalition parties and the legal conversion still different adjustments in the projects result or also certain legal projects will flow at short notice into the legislative process. According to the current status, 57 key points are planned. We consider the following areas to be important..:
In order to strengthen domestic demand in Germany, the VAT rate will be reduced from 19% to 16% and from 7% to 5% for a limited period from 1.7.2020 to 31.12.2020. This will lead to high administrative costs for companies (checklist from Stallmeyer articles)
- Due to the effects of the Corona pandemic, expenditure in all social insurance schemes is increasing. In order to prevent a resulting increase in non-wage labour costs, social security contributions are to be stabilised at a maximum of 40% as part of a “Social Guarantee 2021”, in that any additional financial requirements are to be borne by the federal budget at least until 2021. This should protect the net incomes of employees and bring reliability and competitiveness for employers.
- The due date of the import VAT rate tax will be postponed to the 26th of the following month. This is intended to provide companies with a liquidity effect of around 5 billion euros and enables companies in Germany to play a “level playing field” with many of our European neighbours.
- The tax loss carryback will be extended – by law – to a maximum of EUR 5 million for the years 2020 and 2021 and EUR 10 million (in the case of joint assessment). A mechanism will be introduced to enable this carryback to have a direct financial effect in the 2019 tax return, e.g. by setting up a tax corona reserve. This should already create the necessary liquidity today and, in the opinion of the coalition, should be managed with a minimum of bureaucracy. The reserve will be released by the end of 2022 at the latest.
- As a fiscal investment incentive, a declining balance depreciation for wear and tear (AfA) with a factor of 2.5 compared to the currently applicable AfA and a maximum of 25% per annum for movable fixed assets in the fiscal years 2020 and 2021 is to be introduced.
- In order to improve the competitive conditions for companies, the corporate income tax law is to be modernised: among other things by means of an option model for corporate income tax for partnerships and the increase of the reduction factor for income from commercial operations to 4.0 times (previously 3.8 times) the trade tax base.
- In order to use the potential of a well-regulated, modern and efficient capital market and to strengthen Germany as a location for investments in future and growth companies, the opportunities for employees to participate in their companies should be improved. We will also address the special situation of start-up companies and create an attractive employee participation scheme for them.
- In the opinion of the coalition government, the short-time work allowance is proving its worth in the economic crisis caused by the Corona crisis, as it did during the financial crisis. Therefore, in light of the pandemic situation, a reliable regulation for the receipt of short-time work compensation from January 1, 2021, is to be presented as early as September.
- In order to secure the existence of small and medium-sized enterprises, a bridging aid programme is to be set up for Corona’s loss of VAT rate. The volume of the programme is set at a maximum of 25 billion euros. The bridging aid will be granted for the months June to August. The bridging allowance applies across all sectors, whereby due account must be taken of the different circumstances of the particularly affected sectors, such as the hotel and catering industry, caterers, pubs, clubs and bars, overnight accommodation facilities run as social enterprises – such as youth hostels, school country homes, providers of youth facilities for international youth exchange, facilities for the disabled, travel agencies, professional sports clubs in the lower leagues, showmen, event logistics companies and companies in the area of trade fair events. Eligible to apply are companies whose sales have fallen by at least 60% in April and May 2020 compared to April and May 2019 due to Corona and whose sales declines continue in the months June to August 2020 by at least 50%. Up to 50 % of the fixed operating costs are reimbursed in the event of a decline in revenue of at least 50 % compared to the same month of the previous year. Up to 80% of the fixed operating costs can be reimbursed in the event of a revenue decline of more than 70%. The maximum reimbursement amount is EUR 150,000 for three months. For companies with up to five employees, the reimbursement amount should only exceed 9,000 euros, and for companies with up to 10 employees, 15,000 euros only in justified exceptional cases. Any claimed reductions in VAT rate and fixed operating costs must be audited and confirmed by a tax consultant or auditor in a suitable manner. Overpayments are to be reimbursed. The application deadlines end in each case on 31.8.2020 at the latest and the payment deadlines on 30.11.2020.
- A one-off child bonus of 300 euros per child for each child entitled to child benefit provides support to families particularly affected by the restrictions. This bonus is offset against the tax-free child allowance – comparable to child benefit.
- Due to the higher childcare costs (especially for single parents in times of Corona and the expenses caused by this), the relief contribution for single parents is to be increased – limited to 2 years – from currently 1,908 euros to 4,000 euros for the years 2020 and 2021 and thus more than doubled.
- The learning success of trainees should not be jeopardized even in the pandemic. Small and medium-sized enterprises (SMEs) that do not reduce the number of training places they offer in 2020 compared to the three previous years will receive a one-time premium of 2,000 euros for each newly concluded training contract. Such companies that even increase the number of training places on offer will receive € 3,000 for the additional training contracts. SMEs that continue their training activities despite corona burdens and do not put trainers and trainees on short-time working can receive support. SMEs that are unable to continue in-company training are to be given the opportunity of a temporary subsidised joint in-company training or contract training. The details of the implementation of such joint or contract training will be discussed within the framework of the Alliance for Education and Training. Companies that additionally take on trainees who are unable to continue their training due to the insolvency of their training company will receive a take-over bonus in accordance with the joint declaration of the Alliance for Training and Further Training of 26 May.
- The tax research allowance will be granted retroactively to 1.1.2020 and limited in time to 31.12.2025 on an assessment basis of up to 4 million euros per company. This provides an incentive for companies to invest in research and development and thus in the sustainability of their products despite the crisis.
- In application-oriented research, the co-financing obligations for companies that are particularly affected by the corona crisis will be reduced. The Federal Government supports the large non-university research organisations with one fund each, from which promising projects can receive substitute financing in such cases in order to prevent the discontinuation of research work.
- The motor vehicle tax for passenger cars will be more strongly oriented towards CO2 emissions, which will have a noticeable steering effect towards lower-emission or zero-emission vehicles. For new registrations, the tax base as of 1.1.2021 will therefore mainly be based on CO2 emissions per km and above 95g CO2/km will be increased in stages. In addition, the existing ten-year vehicle tax exemption for purely electric vehicles will be granted until 31.12.2025 and extended to 31.12.2030.
- An eco-rebate is intended to promote the replacement of the motor vehicle fleet with climate- and environmentally friendly electric vehicles. In the existing system, the federal government’s premiums are to be doubled as a new “innovation premium”. This will not affect the manufacturers’ premiums. This means, for example, that up to a net list price of the e-vehicle of up to 40,000 euros, the federal subsidy will increase from 3,000 to 6,000 euros. This measure is limited until 31.12.2021. If purely electric company cars are taxed at 0.25%, we will increase the purchase price limit from 40,000 euros to 60,000 euros. Within the framework of the national platform “Mobility of the Future” we will discuss the question of the optimised degree of utilisation of the electric drive in plugin hybrid vehicles.
- The temporary fleet exchange programme for craftsmen and SMEs for electric commercial vehicles up to 7.5 t will be implemented in the near future.
- The CO2 building refurbishment programme will be increased by one billion euros to 2.5 billion euros for 2020 and 2021. The federal government’s funding programmes for the energy-related renovation of municipal buildings will also be increased and a programme to promote climate adaptation measures in social institutions will be launched.
- Handling and treatment of the invoicing and issuing of vouchers
- As well as other economic key points are e.g.
- the EEG levy should remain stable,
- periods of good conduct in insolvency proceedings are reduced to three years,
- public investment is brought forward,
- a KfW loan programme for non-profit organisations is launched,
- Climate support measures (e.g. forest concepts and hydrogen strategies) are implemented,
- Support for local authorities,
- Subsidy for local public transport (ÖPNV),
- Subsidies for sports facilities and benefits for day-care centres,
- Subsidies for the automotive supply industry,
- Improvements in mobile communications infrastructure (5G; GSM-R),
- Promotion of digitisation and artificial intelligence.
We recommend following the website of the Ministry of Finance for the further progress of the legislative process. We will inform you about other important changes here.