Further changes in the Annual Tax Act 2020

The majority of the changes in the Annual Tax Act 2020 will take effect in 2021. But there are also some changes that will take effect retroactively or with a delay.

Every year, there is at least one tax amendment law that bundles many changes in various areas of tax law as an "annual tax law". In the past, these amending laws were also officially allowed to bear the name "Annual Tax Act", but in recent years there have only been unofficial Annual Tax Acts. With the "Annual Tax Act 2020" there is now, for the first time in a long time, a major tax amendment law that not only deserves the name "Annual Tax Act" but was also allowed to keep it until the end.

In the first draft, the Federal Ministry of Finance had already compiled more than 200 pages of amendments and necessary adjustments to EU law and the case law of the European Court of Justice, as well as reactions to rulings by the Federal Fiscal Court. In addition, the law contains the unavoidable technical need for regulation in tax law. These include procedural and jurisdictional issues, adjustments due to previous amendments to the law, and corrections of errors.

This draft was expanded by the Bundestag and Bundesrat with many additional regulations and finally passed shortly before the turn of the year. You have already become familiar with some of the changes contained in the Annual Tax Act 2020 in the "Overview of changes for 2021". In addition, however, there are a whole series of other changes that update existing regulations, enshrine them in law, come into force at a different time or simply have a minor impact. Here is an overview of these further changes by the Annual Tax Act 2020.

• Corona bonus payments: The tax exemption for bonus payments to employees of up to EUR 1,500 was previously limited to the end of 2020, but has now been extended to the end of June 2021. However, the extension of the deadline does not mean that a bonus payment of up to EUR 1,500 can be paid tax-free again in the first half of 2021.

• Short-time allowance: The tax exemption of employer allowances for short-time working will also be extended, but in this case by one year, i.e. until December 31, 2021. However, the tax-exempt employer allowances will be taken into account in the progression proviso, which is why they must be entered in the electronic wage tax certificate.

• Single parents: The relief amount for single parents, which was increased to 4,008 euros as part of the Corona stimulus package, was previously limited in time. The time limit will be lifted so that the increase will continue to apply from 2022.

• Non-cash benefit exemption limit: The limit for tax-free benefits in kind will be increased from 44 to 50 euros per month. The increase will apply from 2022. There is to be clarification for non-cash benefits cards by means of an administrative instruction.

• Fringe Benefits: In the fall of 2019, the German Federal Fiscal Court (Bundesfinanzhof) had changed its case law on tax-exempt or flat-taxed fringe benefits and considered the legal requirement of "in addition to the salary owed anyway" to be met also in the case of salary waivers and salary conversions. The Federal Ministry of Finance immediately issued a non-application decree in response to this ruling. Now the conditions for the additionality requirement set out in the non-application decree are also laid down in law. Accordingly, employer benefits (benefits in kind or subsidies) are only provided "in addition to the wages owed anyway" if four conditions are met:

  1. The benefit is not credited against the entitlement to wages.

  2. The entitlement to wages is not reduced in favor of performance.

  3. The appropriation or earmarked benefit is not granted in lieu of a future increase in wages that has already been agreed upon.

  4. If the benefit is discontinued, wages are not increased.

  

• Community of property gains: In the event of the death of a spouse or civil partner, the surviving partner is entitled to an inheritance tax exemption in the amount of the equalization claim that he or she would have been able to claim as an equalization of gains if he or she had not become an heir and had not been entitled to a legacy. Because the previous structure of this provision resulted in an unjustified double benefit for the surviving partner, the deductible notional equalization claim is now reduced. For this purpose, the ratio between the value of the final assets reduced by the tax exemptions and the value of the final assets is used as a basis.

• Average rate taxation: Under European law, it is possible to apply a flat-rate scheme to agricultural producers who would encounter difficulties in applying the normal VAT regime. The European Commission has doubts about the implementation of this option in Germany to date. In order to create legal certainty and settle a complaint by the EU Commission against the previous regulation, a turnover limit of 600,000 euros per year will be introduced, up to which use may be made of the flat-rate regulation.

• Housing transfer: A year ago, a valuation discount was introduced for apartments that the employer provides to the employee for his or her own residential purposes. Previously, the difference between the rent actually paid by the employee and the local rent was taxable as a benefit in kind. Now, no non-cash benefits are recognized if the employee pays at least two-thirds of the local rent and the local net cold rent does not exceed 25 euros per square meter. In effect, therefore, only the difference between the actual rent and the comparative rent reduced by one-third is to be recognized as a benefit in kind. This regulation on the valuation discount is now supplemented so that the valuation discount also applies if the apartment is provided to the employee by an affiliated company at the instigation of the employer.

• Research allowance: There are several additions and clarifications to the Research Grants Act that are intended to prevent unjustified multiple funding and simplify handling. In particular, expenses are now consistently based on expenses incurred instead of fees paid. This will help companies that prepare their financial statements to recognize expenses on an accrual basis. In addition, it is clarified that the research allowance is not to be credited even in the case of change notices that have no effect on the actual tax assessment.

• Invoice correction: After the European Court of Justice and the Federal Fiscal Court ruled that an invoice correction is also possible retroactively, it is now clarified that the correction of an invoice is not a retroactive event within the meaning of the German Fiscal Code and thus does not result in the possibility of amending a tax assessment without any time limit. However, this does not change the retroactive effect of the invoice correction for the input tax deduction.

• Law enforcement: For all cases of particularly serious tax evasion not yet time-barred by the end of 2020, the limitation period will be extended from 10 years to 15 years. Together with a provision on the confiscation of the proceeds of the crime, these are changes that are aimed in particular at the Cum-Ex scandal, which has still not been fully dealt with.