The storm event in mid-July 2021, particularly in North Rhine-Westphalia and Rhineland-Palatinate as well as in parts of Bavaria, caused enormous damage. In addition to the many human lives, the floods have caused considerable destruction to homes and businesses in Germany. Now the federal states of NRW and Rhineland-Palatinate are trying to help the survivors through extensive tax relief measures. For this purpose, the financial directorates of the two federal states issued a disaster decree. This regulates, among other things, the deferral of tax payments due, the benefit of donations and the loss of accounting documents. Also in the reconstruction, generous tax measures are taken. For example, for the repair of buildings, special depreciation possibilities for replacement production costs and the alternative approach are considered deductible maintenance costs. In addition, companies can create tax reserves to restore damaged or completely destroyed properties. And, of course, agricultural and forestry enterprises also receive generous tax aid for reconstruction.

We discuss which tax measures NRW and Rhineland-Palatinate have taken as a result of the flooding to help the victims.

On 14 and 15. In July 2021, it rained particularly heavily and persistently in many parts of Germany. On the one hand, large parts of western Germany were affected. In the two federal states of North Rhine-Westphalia and Rhineland-Palatinate in particular, several regions experienced the rapidly escalating flooding. But also in parts of Bavaria flooded through cities and municipalities. Many people tried to save their belongings, others their lives, but only those who were lucky succeeded. The rescue forces and the Bundeswehr also tried to intervene in these dramatic situations. In the end, however, much remained destroyed in the floods.

Now the high water flows off and gradually releases what it devoured with its torrents. At the same time, the population, with the support of the auxiliary forces, is carrying out the removal of sludge and debris and debris. This first step towards the normalcy of everyday life, which the affected persons lost in some cases within a few minutes, should take weeks or months. Only then can reconstruction take place.

The tragedy may have just happened, the wounds of the victims gap after a long time, but many people are already thinking of reconstruction. The financial directorates of the federal states of North Rhine-Westphalia and Rhineland-Palatinate have also already responded to this general emergency by issuing a disaster decree. It includes tax measures to support those affected and those who wish to help. In wording, these disaster decrees are even very similar to floods. After all, they both have the same goal: to provide fast, as unbureaucratic help as possible through extraordinary tax regulations.

We take this as an opportunity to inform about this assistance in this article. In light of this disaster, we want our readers to understand that we do not see this as an opportunity for self-promotion. Therefore, we refrain – as far as technically directly implementable – from the advertising messages otherwise contained in our contributions. This should also be an expression of our respect for the many victims.

Losses of income due to flooding, for which farmers and foresters who tax their income according to § 13a EStG do not receive insurance benefits, remain exempt from income tax. In addition, the re-cultivation for permanent crops or forests should be tax-advantageous. If the previous book values are maintained, the financial administration considers the costs as deductible operating expenses. In doing so, it should refrain from a review.

Foresters can also form tax reserves for insurance benefits received for reforestation. The reserve must be dissolved within nine years, but at the latest at the time of reforestation. In this case, a distinction between compensation for loss of income and replacement purchases is waived. Here, too, the proviso applies that the book values are maintained.

In addition, an adjustment of the tax rate for so-called calamity wood takes place. If the damage is twice the applicable rate of use, the applicable rate is only 25 % of the average rate that would otherwise apply. Furthermore, in 2021, in the case of accounting, under the same conditions, the activation of logged but unsold wood can be waived.

In the case of destruction caused by the floods on permanent crops, farmers and foresters can count particularly high restoration costs on application to the tax office over a period of up to five years as deductible operating expenses.

Finally, in the event of damage, a reduction of the property tax according to § 33 GrStG comes into question.

Costs of repair or reconstruction of operational buildings may be considered as manufacturing costs provided they do not constitute maintenance costs. Special depreciation can be used on request. These are eligible for the marketing year of the restoration and the two following years and each amount to 30% of the tax base to be calculated according to § 7 (4) EStG. For this purpose, the assessment basis to be quantified before the time of damage is determined, this is then reduced by either the partial depreciation or special depreciation on the basis of the damage caused by the flood and in return the acquisition costs for the restoration are added. After the end of the beneficiary period, the remaining value is subject to regular depreciation. This also applies to agricultural and forestry holdings. Finally, it should be noted that the statutory requirements according to § 7a EStG also remain valid here.

If damage to the land has occurred due to flooding, then the restoration costs for repairing the damage can be considered as an immediately deductible operating expense. If this applies to damage to economic routes or farm fortifications, then this applies only if the previous book values are maintained. In the case of major damages, the tax office can extend the period during which the costs of repairing these damages can be considered as a maintenance expense to up to five years. The balance sheet estimates must be distributed evenly over the available period. However, this must be requested first.

Similar to the tax assistance received by farmers and foresters for property tax, this can also apply to other companies. However, the legal norm of § 34 GrStG applies here.

Special depreciation is also possible for movable assets that require replacement due to flooding. A three-year beneficiary period starting with the year of replacement shall also apply. However, injured parties can use up to 50% of the acquisition costs as a special depreciation. After the end of the beneficiary period, the residual value is regularly written off over the remaining useful life. In order to benefit from this advantage, however, one must have started to procure or manufacture the lost asset within three years of the flood.

Furthermore, companies can form reserves for the replacement procurement. The reserves shall be eligible in the marketing years preceding the replacement. This applies to both operational buildings and movable assets. However, the creation of reserves is only possible in justified exceptional cases and only on request from the financial administration. The conditions for this are that the cost of replacement is either higher than the special depreciation provided for this purpose or that the part production costs or advance payments are abnormally high. In addition, a distinction is made here with respect to the amount of the maximum provision. When it comes to a provision for a building, up to 30% of the acquisition or production costs are possible as a reserve, but up to 50% for movable assets.

If you can claim special write-offs on the replacement purchases, then a profit-increasing dissolution of the reserve is necessary. In the case of buildings, such a cancellation of the reserve must take place at the latest in the fourth marketing year following the start of the construction work. On the other hand, reserves for the replacement of movable assets must be set aside in the year of the replacement, but at the latest at the end of the third marketing year following that in which the flooding occurred.

Operational buildings and movable assets can alternatively be claimed as maintenance costs. You have to start procuring replacements within three years of the flood. In addition, you have to continue the previous book values. No audit by the tax office is required. But the effort to compensate the damage incurred must be higher than the possible compensation. At the same time, however, no exceptional depreciation due to technical or economic wear and tear can be used. However, in the case of buildings, the total cost for the replacement purchase may not exceed EUR 70,000. A possible compensation by insurance is irrelevant here.

In accordance with the regulations for the treatment of flood damage to the land (see section 4.2.), you can also submit an application to the tax office to spread the maintenance effort over up to five years.

If accounting documents and similar important documents have been irretrievably lost due to the flood, the tax offices have to believe the injured party. For this purpose, those affected should document the loss as soon as possible. Of course, this only applies if this is even possible. In any case, the persons concerned should not suffer any tax disadvantage from the loss of accounting documents.

In addition, a total maximum amount of EUR 600,000 applies to special write-offs and reserves, of which a maximum of EUR 200,000 can be recognised annually. However, higher amounts may be considered as special depreciation or reserves if the floods have caused significant damage and the granting of an exemption of higher amounts appears necessary to alleviate the emergency situation. However, the Federal Ministry of Finance must approve a corresponding application.

Finally, another condition on special depreciations and reserves. It concerns the amount of the basis for calculating the acquisition or production costs in respect of any insurance indemnities received. Because these understandably reduce the amount of the appraised costs. The same applies if there is a success-neutral detection of hidden reserves for the purpose of replacement procurement or restoration.

If a taxpayer’s income from rental and lease is subject to losses due to damage caused by the flood, then one can also hope for tax assistance. This is because the restoration of land and buildings is subject to the same regulations as for operational real estate (see also sections 4.1. and 4.6.)

Furthermore, the financial administrations of North Rhine-Westphalia and Rhineland-Palatinate grant the recognition of restoration costs for buildings and land as maintenance costs if the total cost is at most EUR 70,000. Also, any compensation payments have no influence on this. Only costs that exceed the compensation received are taken into account. There must also be no approach to exceptional technical or economic wear. Furthermore, in this context, flood victims can claim higher costs over a period of up to five years as maintenance costs.

The condition for this tax assistance is that the restoration begins before the end of the third calendar year following the year in which the flood occurred.

For property tax, the requirement applies here as well, according to which companies can receive tax assistance according to § 34 GrStG.

In order for workers affected by flooding to receive tax support, the said disaster decrees grant tax-free approaches to the calculation of payroll tax.

If employers provide their flood-affected workers with monetary or other allowances, they will remain unrecognised in the payroll tax statement, provided that they do not exceed EUR 600 per calendar year. However, an employer can also pay higher amounts tax-free in special situations and in view of the family conditions of an employee. And a flood is explicitly considered a special circumstance.

In addition, the general provisions of the wage tax directives concerning the granting of aid to employees, in particular LStR 3.11, apply. However, the disaster decrees exclude the conditions set out in LStR 3.11 paragraph 2 numbers 1 to 3 LStR.

Exempt aid, which employers use to enable their employees to repair flood damage, also includes taxable interest rate benefits on loans. The same applies to interest subsidies. This applies regardless of the duration of the loan. However, the prerequisite for this is that the amount of the loan does not exceed the damage caused by the flooding.

In addition to the tax-free benefits, the payroll account must also list the special circumstances that caused the flooding for the employee.

Also welcome is the regulation that allows colleagues of flood-affected employees to make tax-free contributions to alleviate the emergency. In doing so, one waives a share of one’s own wage or salary, so that the employer can pass on this aid to the injured employees. Other types of assets may also qualify as tax-free aid.

Alternatively, employees and employers can agree within this framework that wage waivers are donated to non-profit organizations. This also enables those workers who are fortunate enough not to know any employees in the company who have been damaged by the floods to show solidarity.

As for the records of this collegial or solidarity support in the payroll account, they should be included there. Only on the express wish of an employee can this be waived. Instead, the waiver must then be documented.

Furthermore, the amount left over remains unrecognised when registered under the payroll tax certificate. Of course, the amount must not be part of the income tax return of the helpful employees as a donation deduction.

People who have been deprived of their belongings by the flooding can classify the costs of restoring essential everyday objects as an exceptional burden on their income tax. This includes in particular clothing, furnishings of the apartment, including furniture. In addition, victims of owner-occupied residential property can also deduct the costs incurred by the flooding as exceptional burdens. This also applies if no insurance against elementary damage applies.

In order to provide assistance related to these exceptional burdens to injured employees as quickly as possible, you can apply to the tax office for a correspondingly high wage tax exemption. As a result, victims receive the tax assistance provided for this purpose indirectly via the next payroll.

In addition, the possibilities of taxpayers affected by the floods to pay due taxes should now come to the fore. Because you can apply to the competent tax office until 31.10.2021 that the tax is to be paid only after 31.01.2022. To do this, you have to prove that you are significantly affected by the flooding. This applies both to taxes levied by the respective federal state and those of the federal government. For this purpose, it is unnecessary to prove the actual amount of damage. However, if a deferral on taxes incurred after 31.10.2021 is to take place, this requires special justification.

In addition, the tax offices should refrain from claiming the interest normally to be calculated in the event of a deferral.

Similar requirements exist regarding the adjustment of advance payments to income taxes (income tax and corporate income tax).

If taxes are due for enforcement in the case of a taxpayer affected by flooding, the executor may notify the tax office of the special circumstances in order to suspend enforcement. A waiver should also apply here to any delay surcharges.

Whether a deferral or even a remission of business taxes is in question is solely at the discretion of the municipalities. But one should certainly dare the attempt and make a corresponding application to the respective municipality entitled to raise.

Also until 31.10.2021, people who donate money to an aid organization to benefit those affected by the flooding need only keep proof of payment of the donation. So there is no need for a donation receipt for the consideration of the donation in the context of income tax.

Additional exceptions exist for non-profit-making organisations which include in their statutes a purpose other than charitable support. Exceptionally, such organizations should be able to collect donations for those affected by the floods as part of a special action. Their tax exemption is unaffected.