Corona - Flat-rate tax loss carryback with immediate tax refund for affected entrepreneurs and landlords

In addition to the tax relief in connection with the Reduction of tax prepayments and the recent easing of the Wage tax registration deadlines the Federal Ministry of Finance (BMF) last Friday a BMF letter with further tax relief for traders and landlords.

The tax authorities want to help taxpayers who made tax prepayments for the 2019 assessment period but are facing losses in 2020 due to the coronavirus crisis, Short-term tax relief to the taxpayer. Without this measure, corresponding relief could only be achieved by claiming a loss carry-back as part of the 2020 tax return, which - depending on when the tax return is submitted - would only lead to tax refunds with an impact on liquidity in 2022, for example. The relief should generally flat-rate without a forecast and presentation of the losses in individual cases.

In detail, the BMF letter mentioned above provides for Application for a flat-rate reduction of advance payments made for 2019 as follows:

• ApplicantTaxpayers directly and significantly negatively affected by the coronavirus crisis who have not yet been assessed for the 2019 tax year and who generate profit income or income from letting and leasing in the 2020 tax year. It can regularly be assumed that a taxpayer is affected if the advance payments for 2020 have been reduced to zero euros and the taxpayer assures that they expect a not insignificant negative amount of income for the 2020 tax year due to the coronavirus crisis.
• ApplicationWritten or electronic (e.g. via ELSTER) application to the tax office responsible for determining income tax or corporation tax. The application for a reduction in advance payments under the flat-rate procedure can be submitted at the same time as the application for a reduction in advance payments for 2020.
• Loss carry-back from 2020 determined on a flat-rate basis 15 % of the profits/rental income on which the advance payments for 2019 were based. It is to be deducted up to an amount of EUR 1,000,000 (EUR 2,000,000 in the case of joint assessment). The option of submitting detailed documentation in individual cases to demonstrate a higher deductible loss remains unaffected.
• ReimbursementThe advance payments for 2019 are to be recalculated and set taking into account the flat-rate loss carryback from 2020. The additional advance payments to be refunded for 2020 are offset against the refundable advance payments for 2019. As a result, advance payments are refunded that are based on the Income tax and corporation tax have been made. A change in the determination of the advance payments leads to a claim for reimbursement.

Example from BMF letter:

A generates income from commercial operations and has paid the advance income tax payments of EUR 24,000 assessed for 2019. The advance payment assessment for 2019 was based on an expected profit of EUR 80,000. Advance payments of 6,000 euros per quarter were determined for 2020. A made the payment for the first quarter of 2020 on the statutory due date (10 March 2020).

Due to the coronavirus crisis, the business's turnover collapses significantly. The fixed costs remain unchanged. A applies to the tax office to reduce his advance payments for 2020 to zero euros, explaining the aforementioned circumstances. The tax office reduces the advance payments for 2020 income tax in accordance with the application and refunds the advance payment of EUR 6,000 already made.

In addition, A also applies for a retrospective reduction of the advance payments for 2019. He asserts that he expects a not insignificant negative amount of income for the 2020 tax year due to the coronavirus crisis and applies for the reduction using the flat-rate procedure. The tax office reduces the advance payments for 2019 to EUR 18,000 on the basis of a loss carryback of EUR 12,000 (15 per cent of EUR 80,000) determined on a flat-rate basis. The resulting overpayment of 6,000 euros is refunded.

• As part of the Tax assessment 2019 a loss carry-back from 2020 can only be taken into account after the 2020 assessment has been carried out. In cases in which the advance payments for 2019 were reduced due to the lump-sum loss carry-back, the assessment for 2019 therefore generally leads to an additional payment in the corresponding amount due to the lack of consideration of a loss carry-back from 2020. The additional payment for 2019 attributable to the lump-sum loss carry-back taken into account in the advance payment procedure can be deferred without interest upon application if the taxpayer can still assume a not insignificant negative amount of income for the 2020 tax year at the time of submitting the tax return for the 2019 tax year.

NoteIn practice, the flat-rate loss carry-back of only 15% of the profits on which the advance payments are based will often be too low. It is advisable to maximise the repayment amount by presenting the specific losses (up to the amount of the profits stated in the 2019 advance payment notice) and, ideally, to obtain a refund of all 2019 advance tax payments to strengthen liquidity.

Yours TAXGATE team will be happy to provide you with further information and assistance with your application at any time.