10.12.2020 · COVID-19

M&A COVID-19 Wire XVII

1. State Aids

In 2020, the German Government has provided temporary state aid and extraordinary economic aid to stabilise the German economy. For the year 2021 some changes are to be expected.

The currently ongoing second phase of the state aid will be extended and expanded by a third phase, which covers the funding months January to June 2021. From 2021 onwards, the maximum funding amount will be EUR 200,000 per month for companies instead of currently EUR 50,000. In addition, further changes are planned, such as the eligibility of expenditures for maintenance, modernisation measures or costs for depreciation. A “new start aid for solo self-employed persons” will be added (one-time state subsidy of 25% of the seven-month reference turnover, up to a maximum of EUR 5,000). Here you can find further information (in German).

The extraordinary economic state aid for companies affected by the partial lockdown in November and December 2020 will be extended until the end of the partial lockdown. Further information can be found in our COVID-19 Wire dated 5 November 2020.

In total, the German Government plans to provide EUR 37.5 billion for state aid in 2021. In addition, EUR 30 billion are earmarked for general provisions to cope with the consequences of the COVID-19 pandemic. You can find further information here (in German).

The European Commission has announced in a press release on 13 October 2020 that the regulations on state aid, which are in effect until the end of 2020, will be extended until the end of June 2021. This will ensure on a European legal level that the national economy can continue to receive necessary state support. However, the European Commission has not yet approved the extension of these national measures.

2. Restructuring and Insolvency Law

a) Retrospective

In response to the COVID-19 pandemic in 2020 the reorganisation and insolvency law has been amended. The obligation to file for insolvency according to section 15a of the German Insolvency Code was suspended for insolvent companies (until the end of September 2020) and for over-indebted companies (until the end of December 2020) and for the period of the suspension privileges to protect the financing of restructuring were implemented.

b) Prospects

As of 1 January 2021, insolvent as well as over-indebted companies will, without exception, be required to file for insolvency pursuant to section 15a of the German Insolvency Code. Other privileges, such as those concerning the contest of debtor’s transactions, are no longer extended once the suspension of the obligation to file for insolvency no longer applies.

However, the draft law on the further development of reorganisation and insolvency law (SanInsFoG), which shall come into force on 1 January 2021, provides for new pandemic-related regulations (please refer to the COVID-19 Wire dated 5 November 2020).

3. Corporate Law

As part of a far-reaching legislative package in response to the COVID-19 pandemic, the German legislator had made it easier to carry out mergers and hold shareholders’ meetings without physical presence through amendments in German company law. Read more about this here.

The amendments will also apply in 2021.

4. Labour Law

One of the most important measures provided for companies to mitigate the consequences of the COVID-19 pandemic is the extension of short-time work compensation (including procedural simplifications, increase in short-time work compensation and extension of the maximum period of entitlement).

The increase of the short-time work compensation (to 70/77% as of the fourth month and 80/87% as of the seventh month) as well as the simplified access will also apply in 2021 for all employees whose short-time work compensation was issued for the first time until 31 March 2021.

5. German Tax Law

a) Retrospective

In order to combat the serious economic effects of the COVID-19 pandemic the German Government took extensive relief measures in 2020:

Refund and reduction of advance tax payments
Deferral of tax payments and waiver of enforcement measures
Extension of tax loss carry back
Due date of import VAT postponed to 26th day of the second month following the import
Reduction of VAT from 19% to 16% and from 7% to 5%
Doubling of the R&D tax incentive.

On 1 December 2020, the German Federal Ministry of Finance announced that tax payments will be further deferred, if the taxpayer is directly and not insignificantly affected by the COVID-19 pandemic and files a respective application with the competent tax office until 31 March 2021. The deferral will be effective until 30 June 2021 at the latest. A deferral beyond this date will be granted only under further requirements (e.g. instalment payments).

The German Federal Ministry of Finance also announced that the regular filing period for the 2019 tax returns will be extended for one month, if the tax return is prepared by a tax advisor. The tax return is, therefore, to be filed until 31 March 2021 at the latest.

b) Prospects

The regular VAT rates will rise again to 19% and 7% on 1 January 2021. The time of supply or service is decisive for the applicable VAT rate. Therefore, the regular VAT rates apply, in general, if the supply or service is performed after 1 January 2021. The time at which the payment is received and the invoice is issued is not relevant. Please note: The time of the supply or service depends on the type of the respective supply or service.

Besides, an option of partnerships (transparent entity) to opt a taxation as corporation (opaque) and improved write-down of innovation assets relevant for digitalisation and of low value assets are in consideration currently. Further measures might be included in the draft of an annual tax act 2020. The legislative procedure will continue this year.

6. COVID-19 Pandemic and Legal Proceedings

The COVID-19 pandemic has led to an increased burden on state courts. In 2020, numerous lawsuits were filed against the state restrictions (please see the COVID-19 Wire dated 28 May 2020 and 30 April 2020). In addition to the preliminary proceedings against plant closures or restrictions, compensation through special plant closure insurances also played an important role (see the COVID-19 Wire dated 9 October 2020, 6 August 2020 and 28 May 2020). Depending on the insurance conditions, compensation for damages caused by the closure is possible.

Due to the probably imminent second “hard” lockdown, it can be assumed that companies will increasingly enforce their (compensation) claims in court again.

7. Digitalization

In 2020, digital communication has essentially gained importance and will shape the business world beyond COVID-19. Electronic signatures enable legal transactions to be carried out completely digitalised. This is to be welcomed.

Depending on the security standard, there are three types of electronic signatures: simple, advanced and qualified electronic signatures. Compared to the simple and advanced variants, the qualified electronic signature requires a special personal authentication procedure (personal appearance or remote signature via sign-me/postident procedure in Germany). In general, an effective conclusion of a contract can be done by using electronic signatures, but may be legally excluded in individual cases due to a stricter form is contractually agreed or legally required. However, documents with simple/advanced electronic signatures do not have the same procedural evidential value as documents signed by hand or qualified electronic signatures. The authenticity, completeness and correctness of the document/the signature can be more easily disputed in court. Depending on the significance of the document to be signed, a qualified electronic signature (or a “conventional” signature) is therefore recommended in order to avoid procedural disadvantages.

When deciding on the use of electronic signatures and choosing a provider, it is advisable to involve the data protection officer and to get appropriate (legal) advice.