Financial authorities ease use of equitable measures due to Ukraine war - BMF circular letter dated 5 October 2022

The BMF has taken into account the fact that companies are currently under pressure, in particular as a result of rising energy costs resulting from the Ukraine war, and that these difficulties could also make it more difficult for them to pay their taxes. In its letter of 5 October 2022, the Federal Ministry of Finance (BMF) therefore instructs the tax authorities to "responsibly exploit" the discretionary scope for equitable measures.

An equitable measure is taken into consideration if a tax has in principle arisen and is due according to the law, but there are extenuating circumstances that would make it "inequitable" to burden the taxpayer with this tax obligation at all or at least at this time. With regard to VAT, the relevant factors would be a deferral of payment and a deferral of enforcement.

Pursuant to § 222 of the General Fiscal Code (AO), the tax authorities may defer claims arising from the tax liabilities as a whole or in part if their collection, when due, would mean considerable hardship for the debtor and the claim would not be jeopardised by the deferral. Generally speaking, a deferral should only be granted if such a request has been submitted and some form of guarantee or collateral has been provided.

Insofar as enforcement is inequitable in an individual case, the enforcement authority may temporarily suspend or limit this in accordance with § 258 of the German tax code (AO) or cancel an enforcement measure.

A necessary prerequisite is that the taxpayer is not insignificantly negatively affected economically.

These are very vague terms, and how the tax office will interpret these provisions is uncertain. It is also important to note that although this is a necessary prerequisite for an equitable measure, the not-inconsiderable negative economic impact does not in itself automatically justify an equitable measure. Accordingly, applications should be formulated very carefully; in addition to the explanations of the financial disadvantages suffered, a statement should in any case be made as to why and to what extent these are threatening to the company and why they make the payment of the tax more difficult or impossible.

Deferral interest may be waived in individual cases if the taxpayer has so far fulfilled its tax obligations, in particular its payment obligations, on time and it has not repeatedly made use of deferrals of payment and deferrals of enforcement in the past, whereby equitable measures due to the COVID-19 pandemic are not taken into account to the detriment of the taxpayer. In these cases, a waiver of deferral interest is usually considered if the equitable measure is granted for a period not exceeding three months.

As stated in the BMF letter, the tax offices should not impose strict demands when reviewing the requirements for applications received by 31 March 2023 and should issue a decision "promptly". It remains to be seen to what extent this be successful. Experience with the equitable measures related to the COVID-19 pandemic has shown that the processing times and generosity of the individual tax offices can vary greatly. However, this should not deter anyone from applying for the equitable measures. Any rejection is an administrative action against which legal action can be taken.

25 October 2022