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Determination of profit – Coronavirus emergency relief as taxable income

In a decree from 31.7.2020, the Bavarian State Tax Office clarified that coronavirus emergency relief was taxable.

Companies and the self-employed whose businesses have been damaged by the pandemic are granted financial assistance by the Free State of Bavaria in the form of emergency relief/bridging aid and other support measures. If the eligibility criteria have been met then the financial assistance does not have to be paid back The guidelines in Bavaria include the following information on income tax “... grants obtained for equity reasons are taxable and, in accordance with the general tax legislation rules, have to be taken into account in the course of determining profit“. Accordingly, from a profit tax perspective, the financial assistance should be included as taxable operating income. Please note that this will also apply if the financial assistance has been expressly designated for covering living expenses, or was used for this purpose, as permitted.

Please note: We expressly clarify that the argument – which has been put forward to some extent in the literature – according to which the actual intended use is decisive for the assistance to be treated as taxable operating income will not be accepted.

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