Federal government adopts amendments to the tax loss carry-back
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Federal government adopts amendments to the tax loss carry-back

A few days ago, the German government passed amendments to the tax loss carry-back. We explain what the law means for taxpayers.

The Federal Government adopted the second Corona Tax Assistance Act on 12 June 2020.

The Bundestag resolution also stipulates an extension of the tax loss carry-back for 2020 and 2021. However, the project still has to go through the official legislative procedure.

What is the tax loss carry-back?

The principle of tax loss carry-back works like this: Taxpayers can reduce their tax burden by deducting losses incurred from profits made in the immediately preceding assessment period. This process is called loss carry-back. Until now, the amount that companies could use for this purpose was limited to one million euros for single persons and two million euros for married couples assessed jointly. Tax advisors make a possible loss carry-back via the tax return.

What do the changes to the tax loss carry-back mean in practice?

The loss carry-back from the loss year reduces the positive total amount of the immediately preceding year. Therefore, taxpayers can expect a tax refund.

In technical terms, it sounds like this: the loss carry-back reduces the basis of assessment for the income or corporation tax to be assessed.

For companies, it also should be mentioned that the principle of loss carry-back does not exist for the assessment of trade tax.

What will be changed by the decision of the Federal Government on the tax loss carry-back?

The Federal Government has adopted two measures that apply to private individuals and entrepreneurs:

  • The maximum amount for losses in the assessment years 2020 and 2021 increases from one million euros to five million euros for individual investments. This applies to individuals and companies
  • Taxpayers can claim a flat-rate provisional loss carry-back for 2020 from the total amount of income in 2019. This is limited to 30 percent of the total amount of income for the 2019 assessment period. Anyone who, for example, justifies a higher requirement with a business management analysis can hope for an exemption. A precondition for the flat-rate loss carry-back is a reduction of advance payments for income tax or corporation tax to zero.

Here is what you need to do to apply the changes to the tax loss carry-back

Your tax consultant does this usually. Your tax advisor will apply for the lump-sum loss carry-back in your 2019 tax returns.

The tax assessment for the 2019 assessment period will then initially be subject to review, as the calculated provisional loss carry-back will be reviewed only in the context of the 2020 assessment. For this purpose, the loss carry-back will be reversed first. Then the actual amount of the loss carry-back 2020 is determined. The tax assessment 2019 will be amended then.

Our assessment

In terms of tax policy, the federal government has made many adjustments in recent months. All measures have one goal: support and stabilisation of the economy. Liquidity should remain in companies.

The Federal Government is now setting the course for growth.

The second Corona Tax Assistance Act focuses its effect on the future development of the economy. The presented extension of the tax loss carry-back in connection with the possibility of a preliminary flat-rate loss carry-back for 2020 is intended to bring quickly liquidity to all taxpayers. This can and will work, which is why we also expressly support this state aid.

However, we would still like to give some advice on caution. You should calculate the applications for the flat-rate loss carry-back exactly. If the loss carry-back in the assessment procedure 2020 is lower, the additional tax payment is subject to interest in accordance with § 223a of the German Fiscal Code.

Please contact us if you are considering this option for you or your company. We will gladly help you.

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Steuerberater in Düsseldorf, Johannes Landow
Johannes Landow
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Steuerberater, Fachberater für internationales Steuerrecht