Simplification rules for tax-privileged corporations

(Last update: 14 April 2020)

In response to the corona crisis, the Federal Ministry of Finance (Bundesministerium der Finanzen - BMF) has issued a letter of 9 April 2020 granting various simplifications for non-profit legal entities. They shall apply retroactively as of 1 March 2020 to 31 December 2020.

The key points of the BMF letter are:

Simplified payment receipts for donations

The BMF classifies the corona crisis as a so-called catastrophe within the meaning of § 50 (4), (5) German Income Tax Implementing Ordinance (Einkommensteuer-Durchführungsverordnung - EStDV), thus making it easier to provide the necessary proof of the payment of donations.

For donations made in connection with the corona crisis, which are paid into special accounts of domestic public legal entities, domestic public offices or officially recognised domestic welfare associations, simplified donation receipts are therefore sufficient - irrespective of the amount donated.

According to the BMF letter, the proof of the donation payment that is required for its deductibility can be provided in the form of cash payment receipts, account statements, direct debit receipts or a corresponding printout from online banking.

Proof has also been simplified for trustee constellations in which donations are first transferred via the account of a third party and only then transferred to a domestic public legal entity, a domestic public office or a tax-exempt corporation, an association of persons or an estate. In this case, a confirmation of receipt by the recipient of the donation suffices (note: a simplified donation receipt does not suffice here), if the third party's account was managed as a trust account, the donation was transferred from there to the donation recipient and the latter was given a list of the individual donors and their respective share of the donated amount.

Fundraising campaigns by tax-privileged corporations 

The BMF permits tax-privileged corporations to raise funds to promote aid for people affected by the corona crisis and accordingly - on the basis of proper proof of expenditure - to pass these on to other tax-privileged corporations or to even use them themselves for the corresponding purposes, even if, according to their statutes and per se, they do not promote the purposes required for this (e.g. promotion of public health, promotion of the welfare system or promotion of charitable purposes).

Expenditure of available funds in connection with corona

In addition, according to the BMF, it is now not detrimental to the tax benefits to use existing funds that are not earmarked for any other purpose to support those affected by the corona crisis (or to transfer them to other tax-privileged corporations that pursue such purposes) without amending the statutes. In this context, personnel or premises can also be provided accordingly. The establishment of shopping or courier services for people affected by the corona crisis are also explicitly not to be detrimental to the tax benefits of the corporations, even if costs are reimbursed to the corporation’s members.

Provision of personnel, premises, material resources or other services against payment

Regardless of purpose pursuant to the statutes, the following also applies according to the BMF letter: insofar as tax-privileged corporations make personnel, premises, material resources or other services available to third parties against payment for purposes of coping with the effects of the corona crisis, the income can be allocated to the dedicated activity for both income tax and VAT purposes (§ 65 German Tax Code (Abgabenordnung - AO)). As a result, it is possible to take advantage of the reduced VAT rate (or an exemption from VAT, depending on the constellation) and the income generated accrues to the corporation free of income tax.

Salary donations and donations of the remuneration of supervisory board members

Insofar as employees waive the disbursement of parts of their salaries in favour of a payment by the employer to a donation account of an institution or corporation entitled to receive donations within the meaning of § 10b (1) sentence 2 German Income Tax Act (Einkommensteuergesetz - EStG), these salary components are disregarded entirely in the determination of their taxable salaries. A prerequisite for this is that the employer actually donates the salary components and documents the donation accordingly. As a rule, the donated salary nevertheless has to be recorded in the payroll account (unless the employee expressly waives this in writing). Naturally, the donated, tax-free salary components may not be taken into account again as a donation in the income tax assessment.

The above equally applies to supervisory board remuneration that is wholly or partially waived by the supervisory board member in favour of the recipient of a donation before it becomes due or is disbursed.

Loss compensation

Losses in economic business operations or asset management that are demonstrably generated by 31 December 2020 due to the effects of the corona crisis may be compensated for without detriment to the charitable status with funds from the non-profit business, with profits from dedicated activities and with income from asset management and profits from other economic business operations.

Top-up of short-time work compensation and continued payment of lump sums for trainers and volunteers

Insofar as tax-privileged corporations uniformly top up the short-time work compensation for their employees to up to 80% of their previous remuneration, the tax authorities will refrain from reviewing the use of funds for charitable purposes, which will not be the case here. The lump sums for trainers and volunteers can also continue to be paid without objection by the tax authorities, and that is even if the exercise of the activity for which they are paid is (partially) impossible due to the corona crisis.

We would be pleased to provide you with further details and to assist you in connection with your communication with the tax authorities.

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