COVID-19 Loss Allowance Regulation - COVID-19 reserve should allow for operating losses in 2020 to be taken into account in the 2019 assessment

Oct 6, 2020 Benn-Ibler Rechtsanwälte

A draft of the Regulation on Loss Allowance 2019 and 2018 (COVID-19-Verlustberücksichtigungsverordnung) Allowance Regulation) was sent out by the Federal Ministry of Finance (Bundesministerium für Finanzen, BMF). The purpose of this regulation is to create the possibility of generating positive liquidity effects prior to the implementation of the 2020 assessment by taking into account expected operating losses in 2020 in the 2019 assessment by means of a special deduction item ("COVID-19 reserve").

The legal authorization for such an early possibility of loss allowance is provided by Sec. 124b No. 355 of the Income Tax Act 1988 (Einkommensteuergesetz 1988, EStG 1988). The deduction of this reserve is made from the total amount of the business income and in this respect is systematically modelled on the loss carryback and should, as far as possible, comply with its legal regulation.

An ordinance of this kind was already announced in the materials for the Economic Strengthening Act 2020 (BGBl. I No. 96/2020). It is planned that this should regulate the exact technical details with regard to the planned possibility of taking into account a loss carryback in previous years before the assessment of the year 2020 is completed, thus enabling the repayment of income and corporate income tax (advance payments) already paid.

According to the materials, the following must apply to the COVID-19 reserve: • The total amount of operating income is positive in 2019 and expected to be negative in 2020; • The COVID-19 reserve reduces the total amount of income in 2019, leaving the amount of business income unaffected; • The reserve amounts to up to 30% (without further proof) or up to 60% (if the expected negative total amount is substantiated) of the positive total amount of operating income in 2019, but not more than EUR 5 million.

BMF, Draft (24 August 2020)