COVID-19

POSITION | TAX POLICY

COVID-19: Tax measures to tackle the impact of COVID-19

1 April 2020

23. Oktober 2017 COVID-19 poses an unprecedented threat to businesses The COVID-19 outbreak does not only pose a major challenge to public health care systems around the world but also causes an unprecedented threat to the global economy and European businesses alike. In this context, countries are imposing unparalleled measures which lead to severe economic impacts for businesses. In these challenging times European businesses require immediate support, since they are facing the burden of acute crisis management. The developments in recent days show that the economic impact of the COVID-19 outbreak will be substantial.

BDI is committed to stand together in fighting the COVID-19 pandemic and aims to support companies and policymakers in addressing the challenges arising from this threat to health, society and economy.

For businesses, it is of utmost importance to re-establish confidence in a timely manner and to maintain the functioning of our economy.

German businesses call for a collective response at European level to address the novel situation Many European member states including Germany have already taken important fiscal measures at national level to support businesses through the provision of financial support, state guarantees and the deferral of tax payments or social security contributions. However, in order to deal with the economic crisis caused by the spread of COVID-19, a collective response at European level is needed.

Facing this exceptional period of uncertainty, businesses require immediate support, since companies can run into financial difficulties and have limited administrative capacities. Therefore, only targeted and immediate support can ensure a rapid economic recovery after the current crisis.

Tax and Financial Policy | www.bdi.eu

COVID-19: Tax measures to tackle the impact of COVID-19

Postponement of compliance requirements in the area of taxation is needed Since the current COVID-19 outbreak goes along with limited resources for companies in a time where they are struggling with acute crisis management, any additional increase of compliance requirements in the area of taxation shall be postponed. In particular, this affects the new reporting obligations for cross-border tax arrangements, which apply from 1 July 2020. BDI urgently calls on the European Commission to postpone the new reporting obligations according to Council Directive (EU) 2018/822 (DAC 6) EU-wide by one year to 1 July 2021. For tax authorities, this does not result in any information being lost, as only the reporting date will be postponed. Since this is clearly an EU-wide issue, the postponement must be implemented EU-wide as well. Furthermore, the European Commission shall refrain from opening new infringement procedures against Member States while being in crisis mode.

Tax challenges arising from digitalization shall be addressed in a responsible manner For BDI it is of utmost importance that the perceived tax challenges arising from the digitalization of the economy are addressed in a responsible manner. German business continues to support the work on the OECD project with the aim of finding a global solution. However, the state of emergency due to the COVID-19 pandemic ties up resources of businesses, which are therefore not able to accompany the project and to implement new regulations. Particularly in times of crisis, additional administrative burden on businesses should be avoided, since businesses’ capacity is limited due to the introduced short-time work regulations (“Kurzarbeit”).

Therefore, BDI calls on the OECD to postpone the deadline of its digital agenda. An international taxation order must provide legal certainty and coherence. In these times of extraordinary crisis, it would be unreasonable to stick to the ambitious timetable to reach a political agreement, since a failure of the OECD project is likely to result in further fragmentation of the international tax system through uncoordinated unilateral action.

At the same time, a postponement of the OECD deadline must not lead to unilateral measures at national level, such as the introduction of a Digital Services Tax (DST). In this context, it is important to highlight that a global consensus is required. We therefore call on the European Commission to refrain from own initiatives and to urge national governments not to use a postponement at OECD level as justification for the introduction of national measures. For BDI it is important, that a multilateral agreement will be reached in order to ensure uniform implementation and to minimize compliance costs.

Immediate measures: Deferring VAT-payments and refraining from infringement procedures Many European countries hit by the COVID-19 pandemic have already announced a VAT deferral for at least three months to help companies having payment difficulties which are connected to the outbreak of COVID-19. BDI welcomes these measures as important help for German and European businesses.

With regard to launched infringement procedures against member states, BDI calls upon the European Commission to refrain from opening new infringement procedures for failing to implement the “quick fixes” in the field of VAT.

Tax and Financial Policy | www.bdi.eu 2

COVID-19: Tax measures to tackle the impact of COVID-19

Fiscal policy must be supportive In these extraordinary times, European member states must be temporarily allowed to use maximum flexibility built into the Stability and Growth Pact. Therefore, BDI welcomes the unprecedented decision of the EU finance ministers to activate the general escape clause of the Stability and Growth Pact in order to deal adequately with the new circumstances.

EU state aid rules must allow Member States to take effective action BDI is aware that the immediate support of the economy can lead to problems related to EU state aid regulations and we understand, that from a legal point of view it would be necessary to implement infringement procedures in certain cases. However, in times of crisis, immediate action is required not only to limit the spread of the virus, but also to limit the economic impact of the COVID-19 pandemic.

Only decisive action can help to weather the economic downturn and retain economic growth. Therefore, we welcome the approval of (liquidity) measures in line with Art. 107 TFEU under the Temporary Framework for State aid measures to support the European economy.

Tax and Financial Policy | www.bdi.eu 3

COVID-19: Tax measures to tackle the impact of COVID-19

About BDI BDI communicates the interests of German industry to policymakers. In doing so, it supports companies in global competition. It has access to a widely connected network in Germany and Europe, on all markets and in international organisations. BDI provides policy flanking for the opening of international markets. And it offers information and policy guidance for all industry-relevant issues. BDI is the leading organisation representing German industry and industrial service providers. It is the voice of 40 sectoral associations and more than 100,000 companies with around 8 million employees. Membership is voluntary. Business interests are represented at regional level through 15 representations in Germany’s federal states.

Imprint Federation of German Industries e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0

Contact Dr. Monika Wünnemann Head of Department Tax and Financial Policy T: +49 30 2028-1507 M.Wuennemann@bdi.eu Philipp Gmoser Senior Manager Tax and Financial Policy T: +32 2 792-1012 P.Gmoser@bdi.eu Document Number D 1154

Tax and Financial Policy | www.bdi.eu 4