Annual Tax Act 2018 on the home stretch

The Bundesrat and the Bundestag have dealt with the draft for the Annual Tax Act 2018 and made a few more changes before passing it.

The Annual Tax Act 2018, which may not officially be called that, but since the summer has borne the long name "Act to Avoid Sales Tax Losses on Trade in Goods on the Internet and to Amend Other Tax Regulations," has been finally discussed by the Bundestag and Bundesrat. Compared with the first draft, a number of further changes in tax law have been incorporated into the Act. However, the Bundestag did not take up all of the Bundesrat's proposals in its final deliberations. Here is an overview of the newly added and rejected amendments in the final version of the law.

• Electric company car: The tax benefit for electric company cars, according to which only 0.5 % of the list price instead of 1 % per month is to be recognized as imputed income for the private use of the vehicle, will be introduced as planned. However, there is a restriction for hybrid vehicles; these will only benefit if the range of the electric drive is at least 40 kilometers and a certain CO2 value is not exceeded.

• Company bicycles: With the planned preferential tax treatment for electric company cars, the government wants to send a signal for electromobility and promote environmental protection. However, the Bundesrat has rightly pointed out that the switch from car to bicycle, which is much more advantageous from an environmental point of view, has not yet received any tax incentives. Only if an electric bicycle is classified as a motor vehicle under traffic law would it have benefited from the new regulation. Therefore, the preferential treatment of electric company cars is now accompanied by a temporary tax exemption for the use of a company bicycle. Until the end of 2021, benefits granted by the employer for the provision of a company bicycle or - in the case of self-employed persons and entrepreneurs - the private use of a company bicycle are tax-exempt in addition to the remuneration owed anyway, provided that the bicycle or e-bike is not a motor vehicle under traffic law. Moreover, the tax-free benefits for a bicycle are not offset against the commuting allowance in the private tax return.

• Tax-free job tickets: In the summer, Baden-Württemberg and Hesse had introduced an initiative to exempt job tickets from tax in the Bundesrat. This proposal has now largely been incorporated into the 2018 Annual Tax Act. From 2019, it is planned to reintroduce the tax concession for employer benefits granted in addition to the wages already owed for the use of public transport by employees between home and their first place of work, which was abolished by the 2004 Budget Support Act. Cabs and airlines are excluded from this. In addition, the tax benefit will be extended to private journeys on public transport. However, the tax-free benefits will be offset against the employee's commuting allowance. In this way, the German government wants to prevent over-favoritism toward employees who pay for the tickets themselves.

  

• Reinvestment Reserve: If an entrepreneur sells certain assets from the fixed assets, the possibly resulting profit from the disclosure of hidden reserves does not have to be taxed if it is placed in a reinvestment reserve and used within four years for the production or acquisition of other assets in Germany. If, on the other hand, the reinvestment is made in a permanent establishment in another EU country, the hidden reserves are taxable, but the tax is deferred without interest on application and can be paid in five equal annual installments. This deferral is now supplemented by an interest provision: If the reinvestment in the EU foreign country does not take place, does not take place in the full amount of the reserve or the deferral requirements are not proven, the deferral remains possible, but is then no longer interest-free. This amendment applies for the first time to capital gains arising in fiscal years beginning after December 31, 2017.

• Remediation gains: A restructuring gain resulting from the waiver of a creditor's claim is generally taxable. However, the tax burden would make it more difficult to restructure the company. Although the Federal Ministry of Finance had regulated the waiver of tax on restructuring gains for many years in an administrative instruction, this was deemed unconstitutional by the Federal Fiscal Court. As a result, a legal regulation for the tax exemption of restructuring gains was created last year, but this only applied to debt forgiveness after February 8, 2017. For old cases prior to the publication of the ruling, the tax administration's guideline was originally to continue to apply. However, after the Federal Fiscal Court also rejected this handling, it is now regulated that the new statutory regulation on the tax exemption for reorganization gains must also be applied at the request of the taxpayer in cases where the debt forgiveness took place before February 9, 2017.

• Sports events: Organizational services provided by a non-profit umbrella sports association for sports events of its member clubs will be eligible for tax relief from 2021 onwards if the events are predominantly attended by amateur athletes. With this amendment, the Bundestag is responding to a request from the Bundesrat (upper house of parliament), which had criticized the fact that up to now only the organizational services of sports clubs, but not those of their umbrella organizations, have been eligible for tax relief.

• Marriage for all: After the conversion of a civil partnership into a marriage, the civil partners are to have the same rights and obligations as spouses and be placed in the same position as if they had married on the day the civil partnership was established. In terms of tax law, it has been disputed to date whether this conversion of the civil partnership constitutes a retroactive event that also enables the amendment of assessments that have already become final. In the interest of legal certainty, the law now stipulates that a retroactive event exists if the conversion of the civil partnership into a marriage has taken place by December 31, 2019, and the spouses have jointly applied for the remission, cancellation or amendment of a tax assessment by December 31, 2020. Within this period, it is thus possible in particular to apply retroactively for the splitting tax rate.

• Inheritance tax: As an addendum to the 2016 inheritance tax reform, some editorial corrections are made to the law. In addition, three further constellations are included that can lead to a retroactive elimination of tax relief for preferential business assets of more than EUR 26 million.

• Honorary positions: To support voluntary work, the Bundesrat wanted to increase the so-called lump-sum allowance for exercise leaders to 3,000 euros and the lump-sum allowance for voluntary work to 840 euros. However, the Bundestag did not take up this wish of the Bundesrat, so that the previous maximum amounts continue to apply for the time being. It is possible that the change will be made in a later tax amendment bill next year.

• Low-value assets: Another proposal of the Bundesrat that was not taken up by the Bundestag is a renewed increase of the GWG limit. Even though the GWG limit was almost doubled to 800 euros only at the beginning of the year after several decades without adjustment, the Bundesrat had proposed a further increase to 1,000 euros. At the same time, the collective item depreciation was to be abolished. However, the Bundestag rejected this simplification of GWG depreciation.