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Applications for deferral or reduction
18. März 2020
Liquidity despite corona crisis
The current exceptional situation, which restricts large parts of social life, will lead to a sharp decline in revenues for many companies. A few weeks ago, this current situation was unpredictable and entrepreneurs were unable to prepare. While revenue declines, expenses continue to be incurred. To meet this conflict, application for tax reductions and tax deferrals are quick and effective instruments.
Applications for tax reduction and tax deferral can secure liquidity
In crises, it is particularly important for businesses to secure liquidity for the ongoing business operations. The fact that the current situation leaves short time for action is no cause for concern. Applications for reduction of advance tax payments and tax deferrals in financial distress situations were specifically implemented for scenarios where speed of action is required.
Request for deferral of taxes already due for companies
Legal basis The German Tax Code (AO) regulates in section 222 the tax deferral option for companies in situations of financial distress. According to the regulation, tax authorities may defer tax claims arising from tax liabilities in total or partly if the collection at the due date would constitute considerable hardship for the tax payer.
Requirements Tax deferral are a discretionary measure. The tax officers must decide on a case-by-case basis whether the requirement of a considerable hardship is fulfilled. Based on the evaluation, the application is accepted in total or partially allowed or rejected. At the tax officer’s discretion, considerable hardship is fulfilled in two cases:
The claim was unexpected for the taxpayer and the taxpayer was unable to take precautions.
The taxpayer is confronted with an unforeseeable emergency.
Restrictions Deferrals may only be granted if the tax claim is not at risk for the German tax authorities. Respectively entrepreneurs may be ask to provide securities. In most cases, the bank is required to provide proof that it will not pre-finance the tax payment.
The application can be filed by you or your tax advisor. We will be happy to assist you with the application process. In addition, to the deferral request, an application for a reduction of tax prepayments can be submitted.
Application for reduction of future advance tax payments
Legal basis The option to apply for a reduction of the advance tax payments is a tax aid offer to companies in a difficult situation caused by the corona virus.
For the 2nd quarter of 2020, income and corporate advance tax payments are due by the 10th of June. A grace period is granted until 15th of June. Accordingly, you should proceed as soon as possible to apply for a reduction of these prepayments.
Requirements With the submission of the application, you should provide evidence of expected and existing revenue decline. This will enable you to demonstrate that the taxable income for 2020 will be lower or even that a loss can be expected.
Restrictions The tax authorities seek that applications are processed quickly and with minimum bureaucracy. For this reason, the tax authorities have bindingly assured that they will not place high demands on the companies that are economically affected by the corona crisis with regard to applications for reductions of advance tax payment and applications for interest-free deferral of due tax payments.
It may be advisable to submit an application for an “interest-free technical” deferral. Such an application is possible, in cases where a tax credits/refund which have not yet been assessed for technical reasons can be offset with a tax payment.
The applications outlined above can be effective, short-term and uncomplicated tools that you, as an entrepreneur, can use. This allows you to keep your business running, to remain liquid and bridge the crisis. We will of course assist you with questions and the application process.