Fourth Coronavirus Tax Relief Act Passed by the Bundestag: Key Changes

Background

On May 19, 2022, the Bundestag passed the Fourth Act on the Implementation of Tax Relief Measures to Address the COVID-19 Crisis (“Fourth COVID-19 Tax Relief Act” or “Fourth Corona Tax Relief Act”) to minimize the economic consequences of the ongoing COVID-19-related restrictions and to provide additional investment incentives. Important: The Bundesrat’s approval is required (scheduled for June 10, 2022) for the Fourth COVID-19 Tax Relief Act to take effect.

The following section discusses selected changes.

Elimination of the discounting of liabilities

Under the current rules (Section 6(1)(3), first sentence, of the Income Tax Act), non-interest-bearing liabilities with a remaining term of more than 12 months must be discounted at a rate of 5.5 percent in the tax balance sheet.

Against the backdrop of the current low-interest-rate environment, the rules governing the discounting of these liabilities are being repealed. The liabilities in question will then generally be recognized on the balance sheet at their settlement amount (=face value). This avoids an additional tax burden resulting from discounting income in the year the liabilities are initially recognized. If a liability was already recognized in the prior fiscal year, interest expense resulting from compounding will then arise in subsequent financial statements.

Important:

• Das korrespondierende steuerliche Abzinsungsgebot bei Rückstellungen bleibt dagegen unverändert bestehen. 
• Beim Wegfall des steuerlichen Abzinsungsgebots von Verbindlichkeiten sind die Auswirkungen auf die Zinsschranke zu beachten. Danach führt die Auf- und Abzinsung unverzinslicher oder niedrig verzinslicher Verbindlichkeiten oder Kapitalforderungen ebenfalls zu Zinserträgen oder Zinsaufwendungen für die Zwecke der Zinsschranke.

First-time use

The new regulation applies to fiscal years ending after December 31, 2022. Upon request, the regulation may also be applied uniformly to fiscal years ending before January 1, 2023, provided that the relevant tax assessments are not final. In such cases, the right to elect is deemed to have been exercised through the corresponding entries in the tax profit calculations.

Extension of the Declining-Balance Depreciation Method

The Fourth Coronavirus Tax Relief Act includes an extension of the declining-balance depreciation method introduced by the Second Coronavirus Tax Relief Act. This applies to movable fixed assets acquired or manufactured during 2022 (before January 1, 2023).

As before, declining-balance depreciation may be used in place of straight-line depreciation at a rate of up to two and a half times the straight-line depreciation rate, up to a maximum of 25 percent. To the extent that a movable asset also meets the requirements for claiming special depreciation (§ 7g (5) EStG), such special depreciation may continue to be claimed in addition to declining-balance depreciation.

First-time use

The regulation takes effect on the day after the Fourth Coronavirus Tax Relief Act is promulgated and applies for the first time to the 2022 tax assessment period.

Extension of the Deadline for the Investment Tax Credit Under Section 7g of the Income Tax Act (EStG)

For investment tax credits under Section 7g of the Income Tax Act (EStG), the investment period is extended by one year in each case. Thus, for investment tax credits claimed in fiscal years ending after December 31, 2016, and before January 1, 2020, the investment period—notwithstanding § 7g(3)—does not end until the end of the fourth, fifth, or sixth (instead of the third or already extended) fiscal year following the fiscal year in which the deduction was claimed. Example: An investment reserve established as of December 31, 2019, must then be utilized (or, if applicable, reversed through profit or loss) no later than December 31, 2023.

Extension of Submission Deadlines

The filing deadlines for tax returns and the assessment of late-filing penalties are to be extended as follows:

If you have any questions, the schütze & wirtz tax consulting team will be happy to assist you.

Source: EY, NWB, Federal Ministry of Finance

Photo: Markus Winkler, Unsplash

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