(Value Added) Tax relief for businesses affected by the flood and aid workers
VAT Newsletter 28/2021
1 Flood disaster in Germany: Tax relief for affected companies
About three weeks ago, a flood disaster hit large areas of Germany. Numerous businesses and tax consultants were among those affected. The damage is manifold and ranges from the loss of employees to the destruction of company buildings. In addition, businesses, which are located in the affected areas, are suffering from the damage caused to infrastructure and the interruption of supply chains. Significant losses in sales and profits are anticipated. At the same time, a great wave of willingness to assist those in need developed immediately following the flooding. Numerous businesses are providing support to the affected regions through donations and relief supplies, but also through the provision of machinery and voluntary labour.
Some federal states have reacted to the situation by making special decrees, including North Rhine-Westphalia, which enacted a comprehensive disaster decree on 23 July 2021. The special decrees issued by the federal states provide for the introduction of various equitable regulations. In this regard, the tax authorities have partly fallen back on the pre-existing regulations introduced to deal with the fight against the economic consequences of the Coronavirus pandemic. Inter alia, reductions in tax advance payments, the granting of interest-free deferrals and the waiving of enforcement measures are planned. In addition to relief for monetary donations, there are also special equitable regulations for affected farmers and foresters. Likewise, possibilities for special depreciation and the formation of reserves are being regulated. The Federal Ministry of Finance has also reacted. The Federal Ministry of Finance's letter of 23 July 2021 provides for some special VAT regulations in order to mitigate the consequences for those businesses affected. The letter also seeks to promote the involvement of private and public companies.
2 Deadline extension for annual VAT returns and monthly/quarterly VAT returns
Several federal states have granted a deadline extension until 31 October 2021 for all annual VAT returns due in the near future. This affects, in particular, the annual VAT return for 2019, the deadline for which has already been extended until 31 August 2021 due to the special regulations pertaining to the Coronavirus pandemic. Similarly, monthly/quarterly VAT returns that would have been due on 10 August 2021, as well as on 10 September 2021, can be filed up until 10 October 2021. This includes VAT returns for July and August 2021 or, in the case of businesses, which have a permanent deadline extension, also the VAT return for June 2021 respective the second quarter of 2021. This also applies to tax consultants who have been affected by the flood and, as a result, cannot file their clients’ VAT returns within the regular deadline. Depending on the regulation in each state, an application might be necessary. Currently, such a deadline extension is provided in Bavaria, North Rhine-Westphalia, Rhineland-Palatinate and Saxony. Several other states have already announced their intention to grant similar deadline extensions. Affected business should contact their competent tax office. It is expected that similar accommodating regulations will be granted in this instance.
3 Reduction of the special VAT advance payment for 2021
All businesses affected by the flood disaster are granted the option of having their special advance payment for 2021 reduced to zero. This requires an application to be filed with the competent tax office. The special advance payment already paid will then be refunded and will result in a liquidity advantage. This does not affect the permanent deadline extension.
4 No adjustment of input VAT in accordance with sec 15a of the German VAT Act in the case of accommodation provided free of charge to flood victims
As a result of this disastrous flood, many residential buildings were destroyed or became temporarily uninhabitable. Emergency accommodation and alternative living quarters had to be found in a very short space of time. Both public sector companies and private taxable persons acted in solidarity and provided free of charge housing to those affected. For example, hotel rooms, holiday flats and workers’ flats were made available free of charge to people made homeless by the flood and to volunteers in the disaster area. The tax authorities would like to promote this commitment and therefore will, in these cases, refrain from taxing supplies carried out free of charge in accordance with sec. 3 para 9a of the German VAT Act. Similarly, the obligation to adjust the input VAT in accordance with sec. 15a of the German VAT Act will not apply in these cases. Despite the provision of free accommodation, input VAT can be claimed from the supply of ancillary services in connection with the provision of accommodation, e.g. from the purchase of electricity and water. This regulation will apply for the time being until 31 December 2021.
5 No taxation in the case of free of charge use of capital goods or provision of personnel, in-kind donations
As regards goods, forming part of the assets of a business entitled to full or partial input VAT deduction at the time of purchase, the use of these items, free of charge, is generally subject to VAT in accordance with sec. 3 para. 9a of the German VAT Act. The same applies to supplies of services carried out free of charge by taxable persons. Until 31 October 2021, the tax authorities will refrain from taxing supplies carried out free of charge in these cases.
At the same time, qualified in-kind donations of goods, forming part of the assets of a business, will not trigger VAT in the period from 15 July 2021 to 31 October 2021, but will still entitle the taxable person to deduct the input VAT if these goods directly benefit flood disaster victims. The Federal Ministry of Finance's letter contains a list of the relevant items.
Lawyer, Certified Tax Consultant
Phone: +49 211 54095335
As per: 10.08.2021