On May 19, 2022, the German Bundestag passed the Fourth Act on the Implementation of Tax Relief Measures to Address the Corona Crisis (“Fourth Corona Tax Relief Act” or “Fourth Corona StHG”) to minimize the economic impact of the ongoing Corona-related restrictions and to provide additional investment incentives. Importantly, Federal Council approval is required (scheduled for June 10, 2022) for the Fourth Corona Tax Relief Act to become effective. Selected amendments are discussed below.
Discontinuation of discounting of liabilities
According to the previous regulation (Section 6 (1) No. 3 Sentence 1 of the German Income Tax Act), non-interest-bearing liabilities with a remaining term of more than 12 months must be discounted in the tax balance sheet at a rate of 5.5 percent. Against the backdrop of the current low-interest phase, the regulations on discounting these liabilities will be abolished. The liabilities concerned will then generally be recognized at the settlement amount (= nominal value). This will avoid an additional tax burden from discounting income in the year in which liabilities are initially recognized. If a liability has already been recognized in the previous fiscal year, an interest expense has then arisen from the compounding in the subsequent accounting. Important:
- The corresponding tax discounting requirement for provisions, on the other hand, remains unchanged. If the requirement to discount liabilities for tax purposes is abolished, the effects on the interest barrier must be taken into account. Accordingly, the compounding and discounting of non-interest-bearing or low-interest-bearing liabilities or capital claims also leads to interest income or interest expenses for the purposes of the interest barrier.
First-time application The new regulation is to be applied for fiscal years ending after December 31, 2022. On application, the rule can also be applied uniformly in fiscal years ending before January 01, 2023, provided that the assessments concerned are not final. In this case, the option is deemed to have been exercised by the corresponding entries in the tax profit calculations.
Extension of declining balance depreciation
The Fourth Corona Tax Assistance Act includes an extension of the declining balance depreciation introduced by the Second Corona Tax Assistance Act. This is made possible for movable fixed assets acquired or manufactured during 2022 (before 01.01.2023). As before, declining balance depreciation can be used instead of straight-line depreciation in the amount of up to two and a half times the straight-line depreciation, up to a maximum of 25 percent. Insofar as the prerequisites for claiming special depreciation (Section 7g (5) EStG) are also met for a movable asset, these can be claimed unchanged in addition to declining-balance depreciation.
First-time application The regulation comes into effect on the day following the promulgation of the Fourth Corona Tax Assistance Act and is applicable for the first time for the 2022 assessment period.
Deadline extension for the investment deduction amount according to §7g
For investment deductions under Section 7g German income tax code, the investment period is extended by one year in each case. Thus, in deviation from Sec. 7g (3), the investment period for investment deductions claimed in fiscal years ending after December 31, 2016 and before January 01, 2020 will not end until the end of the fourth, fifth or sixth (instead of the third or already extended) fiscal year following the fiscal year of the deduction. Example: An investment reserve established as of December 31, 2019 must then be used up (or, if applicable, reversed through profit or loss) no later than December 31, 2023.
Extension of deadlines
The deadlines for filing tax returns and assessing late penalties are to be extended as follows:
|Assessment period||Expiry of the deadline for submitting tax returns, advised cases||Deadline for advance request, advised cases||Deadline for extension of the deadline for filing the tax return, advised cases||Start of the period for the assessment of surcharges for late payment|
If you have any questions, please contact the schütze & wirtz tax consultants team.
Sources: EY, NWB, Bundesfinanzministerium
Photo: Markus Winkler, Unsplash
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