1. State Aids
On 21 October 2020, the German Federal Ministry of Economics and Energy announced that applications for the second phase of the Federal Government’s economic aid program for small and medium-sized enterprises can be submitted with immediate effect. The second phase follows the first phase (funding months June to August 2020) and covers the funding months September to December 2020. The application period for the second phase ends on 31 December 2020.
- The application can only be made online by a tax consultant, auditor, sworn auditor or attorney-at-law commissioned by the applicant. You will find further information on the application procedure in this guide (in German) for applicants for the second phase.
- Since 10 October 2020, it is no longer possible to apply retroactively for the first phase of the state aid program. Only amendments for (partially) approved applications for the first phase can be submitted until 30 November 2020.
As part of the video conference of the German Chancellor and the heads of government of the Federal States held on 28 October 2020, it was decided that the Federal Government’s economic aid program for companies would be extended until 30 June 2021 and that the conditions for the main economic sectors affected by the crisis will be improved (so-called third phase). Details are now being prepared by the German Federal Ministry of Finance and the German Federal Ministry of Economics and Energy.
In addition, the German Chancellor and the heads of government of the Federal States decided on an “extraordinary economic aid” to compensate companies affected by the temporary lockdown in November 2020 for financial losses.
- For companies with up to 50 employees, the compensation amount shall be 75% of the turnover of the previous year’s month. For companies founded after November 2019, the revenue of October 2020 will be taken as the benchmark.
- For companies with more than 50 employees, the percentage is to be determined according to the limits of the relevant state aid regulations. Other assistance for the period, e.g. short-time work compensation or financial aid from the first or second phase, will be deducted from the reimbursement amount. Possible later benefits from the state aid for this period will be credited.
- The extraordinary economic aid is to be paid for each state-ordered lockdown week.
- A simplified application for the extraordinary economic aid via the already existing website for state aid shall be submitted by companies, businesses, self-employed persons, associations and institutions, which are banned from doing business due to state regulations in November 2020 or which are already banned due to existing regulations, by a tax consultant, auditor, sworn auditor or attorney-at-law. It is also intended to include companies that are indirectly affected by the lockdown – this shall be the case if the company has regularly generated 80% of its turnover with companies affected by the lockdown.
- Excluded from the obligation to submit the funding application via a tax advisor, auditor, sworn auditor or attorney-at-law shall be so-called solo self-employed persons: They shall be able to directly apply for the extraordinary economic aid up to a funding limit of EUR 5,000.
In addition, at the same conference it was decided to make the “KfW (German Recon-struction Loan Corporation) Fast Credit” of up to EUR 300,000 also available to companies with less than 10 employees. More information on the “KfW Fast Credit” can be found here.
2. Legislative Proposal for the further Development of the Restructuring and Insolvency Law
On 14 October 2020, the German Federal Government adopted a draft law for the further development of the restructuring and insolvency law, the so-called Sanierungs- und Insolvenzrechtsfortentwicklungsgesetz, on the basis of a reference draft by the German Federal Ministry of Justice published in September 2020.
- This draft law includes the adoption of a new law on the Stabilisation and Restructuring Framework for Undertakings (so-called StaRUG). The goal is to implement the requirements of the EU Directive on Restructuring and Insolvency (RL (EU) 2019/1023) dated 20 June 2019. For this purpose, the introduction of a new preventive procedure, the so-called restructuring procedure, is planned, which is supposed to offer companies a possibility to restructure beyond the insolvency proceedings.
- Furthermore, the draft law intends to change, among others, the maximum applicable period of three weeks for filing an application to open insolvency proceedings pursuant to section 15a of the German Insolvency Code due to the reason for illiquidity or over-indebtedness. In the future, the three-weeks period shall only apply in the event of illiquidity; in the event of over-indebtedness, the maximum period shall be extended to six weeks.
- The draft law is currently in the course of being processed by parliament. It is expected to enter into force for the major part on 1 January 2021.
3. Economic Stimulus Package
As announced in an earlier M&A COVID-19 Wire, the German Federal Ministry of Finance, together with the German Federal Ministry of Economics and Energy, is planning a new regulation to support start-ups in the growth phase. The aim is to strengthen companies in the competition for the best talents on the labor market. These plans have now become more concrete:
- The tax-free allowance for employee participation shall be doubled from EUR 360 to EUR 720 and taxes shall only arise when an employee sells his shares and realises the profits. On the increase in value, as with normal share transactions, the final withholding tax of 25% is then to become due – however not immediately on the entire profit, but spread over five years. In addition, the sales tax exemption for investment funds is to be extended.
- It is planned to finalise the draft law by the end of 2020.
4. German Tax Law
On 9 October 2020, the German Bundesrat has published its statement on the draft of an annual tax act 2020 of the German Federal Government. The statement has been eagerly awaited as the Finance Committee of the German Bundesrat previously recommended extensive supplementary measures to deal with the COVID-19 pandemic. On 21 October 2020, the German Federal Government has also published its response to the statement.
The statement provides for an improved write-down of innovation assets relevant for digitalisation and of low value assets. The German Bundesrat follows the recommendations of its Finance Committee in this respect. The German Federal Government intends to examine the proposal.
The German Bundesrat also supported a reduction of the electricity tax. However, the German Federal Government rejects a reduction, because it would not bring any significant financial relief for households.
In contrast, the following recommendations and requests have not reached a majority in the German Bundesrat.
- Extension of the carryback period for corporate tax losses suffered in 2020 and 2021 from one to two financial years.
- Tax incentives for retained profits of partnerships and introduction of an option for partnerships (transparent entity) to opt for a taxation as corporation (opaque).
- Reduction of the legal interest rate from currently 6% to 3% per year.
The German Bundesrat also rejected the recommendation for the implementation of the ATAD directives of 12 July 2016 and 29 May 2017 (EU Directives 2016/1164/EU and 2017/952/EU, “Anti-Tax Avoidance Directives”) with regard to controlled foreign companies (CFC rules) and hybrid mismatch arrangements. The implementation of the ATAD directives (so-called 1:1 implementation) by the annual tax law 2020 seems, therefore, less likely to occur.
The German Bundestag will probably debate the draft bill on 6 November 2020.