· COVID-19

M&A COVID-19 Wire X

In the current issue of our M&A COVID-19 Update we focus on tax and insolvency law aspects of the economic stimulus package adopted on June 03. We also take a brief look at employee stock option plans and the export restrictions on medical protective clothing.

1. State Aids

  • On 3 June 2020, the coalition committee of the German government decided to launch a program for interim financial aid to secure the existence of companies in all sectors in the event of corona-related revenue shortfalls. The volume of the program is set at a maximum of EUR 25 billion.
  • Companies that suffer revenue losses due to the COVID-19 pandemic are to receive a non-repayable operating grant for the months June to August. Companies whose revenues in April and May 2020 were reduced by at least 60% compared to April and May 2019 due to Corona will be eligible to apply. The maximum subsidy amount is to be EUR 150,000 for three months, with the subsidy exceeding EUR 9,000 for companies with up to five employees and EUR 15,000 for companies with up to ten employees only in justified exceptional cases. The deadline for applications is 31 August 2020 at the latest. The Federal Government has not yet issued any legally binding guidelines for the program, which means that applications cannot be submitted at the moment.
  • We keep our overview "COVID-19 - State aid for affected companies" always up-to-date for you. You can find our update from 9 June 2020 under this link.


2. German Tax Law

On 3 June 2020, the German Federal Government adopted an extensive economic stimulus package. A new draft bill dated 6 June 2020 provides for the implementation of tax measures. Not all adopted measures are included. The draft partially deviates from the stimulus package.

  • Reduction of VAT from 19% to 16% and from 7% to 5% from July to December 2020
    • The reduction of VAT is in line with the adopted stimulus package.
    • This leads to an extensive adjustment process.
  • Due Date of Import VAT postponed to 26th day of the second Month following the Import
    • The due date of import VAT would be postponed to the 26th of the second month following the import. This saves liquidity of companies that have to pay import VAT which is refundable by submitting the monthly VAT return.
    • In contrast, the stimulus package provided for a postponement only to the 26th of the immediately following month.
  • Extension of Tax Loss Carry Back from EUR 1 million to EUR 5 million
    • The draft bill would extent the carry back of corporate income tax losses to EUR 5 million p.a. Currently the carry back is limited to a maximum of EUR 1 million.
    • Contrary to the adopted stimulus package, the increase would only apply to losses incurred in 2020, therefore, not including losses in 2021.
    • In order to strengthen the liquidity immediately, companies would be able to use the loss carry back already for purposes of the 2019 corporate tax return by deducting a flat carry back, whereas the stimulus package included a "COVID-19 accrual".
    • Please note: A carry back would still
      • be limited to the immediately preceding financial year, and
      • not be available for trade tax purposes.
  • R&D Tax Incentive doubled
    • The tax incentive for research and development would be granted retroactively from 1 January 2020 to 31 December 2025 on an assessment basis of up to EUR 4 million. This increases the maximum tax incentive to EUR 1 million p.a.
    • This in line with the adopted stimulus package.
  • Option for Partnerships for Taxation as Corporation
    • The package further provides for the option of partnerships (transparent entity) to opt a taxation as corporation (opaque). This corresponds to a long standing demand of the industry for a taxation of companies regardless of their legal form.
    • The draft law does not provide for this option model.


3. Insolvency Law: The new Economic Stimulus Package from an Insolvency Law Perspective

  • The key issues paper of the coalition committee of 3 June 2020 on the planned economic stimulus and crisis management package provides for considerable changes in the field of insolvency law.
  • The debt relief procedure for natural persons is to be shortened from the current (maximum) six years to three years. In addition, accompanying measures are to ensure that the shortened residual debt discharge is not misused. For consumers, the shortening of the debt relief procedure is to be limited in time. In addition, the debtors' application behaviour is to be evaluated after an appropriate period of time, inter alia with regard to possible negative effects on payment and economic behaviour.
  • In addition, the key issues paper announces the introduction of a pre-insolvency restructuring process for corporate insolvencies. However, more detailed information on the content of restructuring proceedings is not addressed in the key issues paper.
  • The above-mentioned changes take up already existing European efforts to unify the law. Directive (EU) 2019/1023 of 20 June 2019 ("Directive on preventive restructuring frameworks, on discharge of debt and disqualifications and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132") opens up the possibility, on the one hand, of coordinating and implementing reorganisation measures under protective conditions in a uniform manner with the parties involved, without the need to reach a consensus or that individual parties involved could block the project. Advocated remediation measures often fail because a minority does not agree to the project. The possibility of taking decisions with binding effect for all affected creditors by qualified majority is known in German law in the case of the ban on obstruction during the vote on the insolvency plan or from the German Bond Act, but for the latter it is limited to bonds. The regulations are to be laid down in so-called restructuring plans, on which the various creditors (groups of creditors) then vote. If individual creditors are voted over, the restructuring plan should require court confirmation.
  • On the other hand, Directive (EU) 2019/1023 also stipulates that entrepreneurs must have access to a procedure that enables them to clear their debts within three years. Exceptions should be possible, among other things, if the insolvent entrepreneur acts in bad faith or dishonestly.
  • Member States have until July 2021 or, if the transposition deadline is extended, 2022 at the latest to transpose the requirements into national law. There is considerable scope for implementation on many individual issues. In a press release of 7 November 2019, the Federal Ministry of Justice and Consumer Protection also announced that in Germany the shortening of the residual debt discharge procedure would also be reduced to three years for consumers.


4. Employee Stock Ownership Plans and Economic Stimulus Package

  • The economic stimulus package contains a reference to a future improved opportunity for employees to participate in their companies. This is intended to exploit the potential of a well-regulated, modern and efficient capital market and to strengthen Germany as a location for investment in future and growth companies.
  • In particular, the special situation of start-up companies will be addressed. The economic stimulus package does not contain further details on this.


5. Update on Export Restrictions for Medical Protective Equipment

  • With the entry into force of the Implementing Regulation (EU) 2020/402 on 16 March 2020, there was an EU-wide restriction on the export of medical protective equipment to third countries. The validity of the regulation was limited to six weeks.
  • On 26 April 2020, a successor regulation to the export restrictions on medical protective equipment came into force with Implementing Regulation (EU) 2020/568 of 23 April 2020. The export of medical protective equipment (protective spectacles and visors, mouth-nose-protection equipment, protective garments) to third countries under the directly applicable European Implementing Regulation was still subject to authorization in written or electronic form by the competent authorities of the Member State where the exporter has its seat. This new regulation applied for a period of 30 days.
  • The Implementing Regulation (EU) 2020/568 has not been extended or replaced by another regulation. The relevant export restrictions have therefore been dropped. Deliveries of medical protective equipment to third countries are now possible without authorization, as are deliveries within the customs territory of the EU (and other European countries, e.g. Iceland, Norway, Switzerland), which were excluded from the scope of the regulations anyway.

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