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Law360 (May 5, 2020, 3:27 PM EDT) -- Germany should make it easier for companies to offset losses suffered due to COVID-19, a business group said Tuesday, arguing that the country should do more to help companies through its tax system.
In a note to journalists, the top tax official of the German industrial group BDI said the country should follow the model of the U.S. and allow loss carrybacks for five years.
The comments came shortly after the German Finance Ministry announced ways businesses could use the tax system to cushion some of the economic damage caused by the COVID-19 pandemic.
Under the new rules, companies that have made advance tax payments for this year can have those repaid, and they can get a 15% refund on advance payments made in 2019. The 15% also applies as a flat rate of the balance of earnings used to determine advance payments for 2019. German law caps the amount that can be offset at €1 million ($1.1 million), or €2 million for joint assessments.
These measures don't go far enough, the BDI said.
"Many companies are reaching their limits. The introduction of loss recovery as an immediate tax measure has relieved some companies in the short term but does not sufficiently compensate for all crisis-related losses," said Monika Wünnemann, head of the BDI's section on tax policy, in a press statement.
She added that expanding the window for carrybacks to five years and raising the volume that could be reclaimed would give urgently needed liquidity and security to struggling medium-size and family companies.
Companies are facing losses "in the millions" and should be able to draw on taxes paid in previous, good years to better withstand the current liquidity crunch, she told Law360.
A Frankfurt lawyer agreed that the government should offer more in the way of relief, saying the €1 million threshold is too low. At the same time, he recommended that relief be in the form of carrybacks and carryforwards rather than direct payments.
"We should all be wary of direct subsidies as that would further the importance of 'political relations,'" said Oliver von Schweinitz, a partner at LPA-GGV.
The Finance Ministry has left the door open for further policy changes, according to a spokeswoman.
"Possible measures to mitigate the economic consequences of the corona pandemic are being continuously examined and are also significantly influenced by the further course of the corona pandemic," Katja Novak said.
--Editing by Robert Rudinger.
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