Measures include temporary reduction of VAT rates and option of increased loss carrybacks
Germany’s governing grand coalition of Christian Democrats and Social Democrats agreed on a comprehensive financial aid package on 3 June 2020 to combat the economic effects of the coronavirus (COVID-19) and to stimulate and reinvigorate the economy. The measures comprise 57 action items that are summarized in a 15-page paper that was published by the government late on 3 June 2020. The stimulus package for 2020 and 2021 would require funding of approximately EUR 130 billion (approximately USD 146 billion), which is approximately one-third of the regular federal budget. The package consists of various tax measures, direct financial aid measures (in particular, for families with children), a reduction of certain levies, and investment measures for new technologies. In addition, it includes a cap for social security contributions (owed by the employee and the employer, in equal portions) in 2020 and 2021, at 40% of the employee’s salary, and support measures for governments at a local level. It comes as a surprise that the package does not include any subsidies for the purchase of new cars (“cash for clunkers”) or a complete and final abolition of the solidarity surcharge.
From a tax perspective, the following measures are planned:
The package still must go through the legislative process and be approved by the upper and lower houses of the German parliament. However, as the governing grand coalition has the majority in both chambers, it can be expected that the package will receive final passage. It also can be expected that the legislative process will be initiated and finalized in a relatively short time period (likely within June 2020, at least for some of the measures). The details for each of the measures remain to be seen.
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Andreas Maywald
Client Service Executive | ICE - German Tax Desk
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