The relaxation of the shutdown can be seen everywhere. However, the effects of the coronavirus pandemic will be felt for a long time to come. The clean-up is now beginning, and this is giving rise to a number of problems and risks.
In addition, the upcoming change in VAT rates will be discussed.
Short-time working allowance:
Many employees have received short-time working allowances. The legal regulation for this has been significantly expanded and simplified. The short-time working allowance was paid out by the employer, so that – with the exception of the reduction, provided that the employer has not topped up the allowance – there have been hardly any changes for the employee.
Although the short-time work allowance is exempt from social security contributions and tax, it is subject to the so-called progression proviso. This means that the tax rate of other taxable income from the total income, including the short-time work allowance, is calculated. As a result, many employees will have to make (modest) back tax payments for the calendar year 2020.
Since the tax equalization with the tax office, which is automatically carried out by the employer at the end of the year, cannot be carried out, employees who have received short-time work compensation must file a tax return. Many will not have done so in the past, so that they will now incur additional expenses.
Emergency aid for solo self-employed and small businesses:
As part of the emergency aid, solo self-employed people and small companies (up to 10 employees) have received non-repayable grants, usually between €6,000 and €12,000. These funds are earmarked and may only be used to cover operating costs (i.e. rent, wages and other costs incurred by self-employment). The subsidies paid may not be used for the general living expenses of the self-employed. Only basic security is intended for this and must be applied for if necessary.
It must be assumed that the relevant authorities will gradually demand proof of use from the recipients of the funds. It is therefore recommended that you keep and compile the relevant evidence and receipts. Misuse of funds not only leads to the repayment of the aid, but can also result in criminal prosecution for subsidy fraud. We know from parallel cases of support payments (for example, after flood aid) that such checks will be carried out.
Tax relief:
In the course of providing support, there have been numerous simplifications in the area of tax administration. Particular mention should be made of easier tax deferrals, the repayment of advance payments made (in particular for VAT for the special payment in February of the year for a long-term extension), the reduction of advance payments, the suspension of enforcement measures and the like.
All these measures are subject to the condition that the person availing themselves of them is particularly affected by the coronavirus pandemic and their business is affected or has availed itself of such measures due to the economic impact of the pandemic. The tax authorities are now checking these conditions and requesting documents and receipts for this purpose. This was not the case, or only to a limited extent, in the measures due to the short-term order and the fact that administrative instructions were therefore not yet available.
Here too, it must be assumed that further checks will be carried out and that evidence and receipts will still be requested. In this respect, the taxpayer has a general duty to cooperate (§ 90 AO). If the conditions for the tax advantages are not met, this could be considered criminal tax evasion, since tax payments have been reduced recklessly or intentionally (§ 370 AO). A tax evasion can already exist if the tax payment is made with a not insignificant delay and this is sought through the requested measures.
If these conditions are met, the taxpayer is advised to correct the matter by making a voluntary disclosure and to compensate for the tax advantages in order to at least avoid criminal prosecution. In the case of subsidy fraud (see previous section), a self-indictment that exempts the taxpayer from punishment is not possible.
VAT rate:
In an initial proposal, the government had already announced that it would limit the reduced VAT rates for food, even if consumed on site, to just the reduced rate of 7% in the period from July 1 to December 31, 2020.
In the meantime, it was decided to reduce the VAT rates in general from 19% to 16% and from 7% to 5%. This does not mean that the change for the catering industry has been reversed; instead, it has been further favored in that meals consumed on the premises will now only be subject to 5% VAT in the second half of the year.
At the time of writing, this measure has not yet been implemented by law, but is only politically desired. The subtleties therefore remain open at some points. With regard to the increase in VAT that will take effect on January 1, 2021, one can certainly look to the experience gained from 2007, the last increase in VAT. There has never been a reduction in sales tax since its introduction in its current form (1968), so there are bound to be a whole range of difficult and unresolved issues.
There is no doubt that the changeover will result in a high administrative burden for companies and that consultants will receive many additional orders and queries, so that the economic success of the changeover can certainly be questioned.
What is clear is that, in terms of tax law, it is not the time of the contract that matters, but the time of the provision of the contractual service. This is the delivery of the item, i.e. the handover to the customer. The same applies to construction contracts for a turnkey house, even if construction work already began in 2018 or 2019. For work and services, the point in time of the final provision of the service is decisive. In individual cases, this may lead to difficult questions of demarcation. However, it should always be noted that the tax assessment does not have to correspond to the (contractual) effect under civil law, so that many individual questions will arise here as well. For example, if I have ordered a new living room couch and the agreed price is €1,990, this price remains unchanged between the seller and the customer, even if delivery takes place in the second half of 2020, unless the contract contains a corresponding provision for adjusting the price in the event of a change in the VAT rate.
It would be going too far to discuss and evaluate the multitude of conceivable and occurring case constellations here. I will therefore limit myself to pointing out a few problem areas. You can then turn this into a brainteaser and consider your own result:
- The newly ordered electric vehicle is actually supposed to be delivered in November 2020, but the delivery is delayed until February 2021.
- Do electricity, gas and water meters have to be read on July 1 and December 31 for the delivery of electricity, gas and water to be recorded for this period and billed at the new tax rate?
- What about long-term contracts, such as cell phone contracts, leasing contracts or gym contracts?
- What about services that last beyond this period, such as a longer-running process?
- What about vouchers issued and purchased before the tax rate change but redeemed within that time period?
- What about a ten-visit pass for the sauna or swimming pool?
How should a package holiday spanning New Year's Eve be accounted for?
This is certainly not an exhaustive list, but it shows how many difficult questions need to be discussed, clarified and then implemented. The providers of computer programs do not have much time to make, test and implement adjustments and changes to the IT. This is a challenge for many areas.
The statements represent initial information that was current for the law applicable in Germany at the time of initial publication. The legal situation may have changed since then. Furthermore, the information provided cannot replace individual advice on a specific matter. Please contact us for this purpose.