This article is adapted from the business magazine Capital and is available here for ten days. Afterwards it will only be available to read at www.capital.de. Like stern, Capital belongs to RTL Deutschland.
The corona pandemic has long been overcome for almost all industries. But for one professional group, the crisis is far from over in these days, which marks the anniversary of the first lockdown in March 2020: tax advisors. Instead, many of them feel more stressed than ever since the Corona waves swept through the economy. For tax advisors, the pandemic is currently at its absolute peak, we hear from small and large law firms. For some, there have hardly been any weekends off in recent months.
The reason for the overload is simple: tax advisors are piling up applications for final statements for the Corona aid that small and medium-sized companies such as restaurants and bars, retailers and car companies received as grants between 2020 and 2022. As so-called “verifying third parties”, they have to verify their clients’ invoices, obtain receipts and answer questions from the government authorities, who in turn check the invoices. Around 550,000 such applications have been submitted nationwide so far, but more than 400,000 are still pending. For a long time the deadline was March 31st. The federal and state economics ministries threatened until the end that anyone who had not submitted an application for a final statement by then would have to pay back the entire money.
The result: Smaller tax consultancy firms in particular are currently completely paralyzed with billing for the Corona subsidies. Tax consultants report that they have not done anything other than Corona statements for weeks, and tax returns have been left behind. Frustration and anger broke out in Facebook groups – because of the immense effort involved in the applications and because many tax advisors have the feeling that their profession is under “general suspicion” and that the state distrusts their work. Many also fear consequences for themselves if they do not submit the applications on time and their clients therefore have to pay back grants. Just last week, the federal and state governments gave law firms a little breathing room by extending the deadline.
Since the start of the pandemic in spring 2020, the federal government alone has provided around 63 billion euros in Corona aid, usually paid out via the federal states. Another 15 billion euros flowed from the states themselves. The programs had names such as bridging aid I to IV, November and December aid, and restart aid. The promise of politics: In the acute crisis, the focus should be on “quick and unbureaucratic” support. The aid was therefore paid out based on calculable costs, such as rental and electricity contracts, as well as estimates from the applicants. According to the principle, the exact settlement will take place later, when the crisis is over. In this way, it should be ensured that the programs using taxpayer money are not abused. Also for this purpose, soon after the hasty and fraud-prone Corona emergency aid in the first lockdown of 2020, the federal and state governments brought in so-called “auditing third parties” through which companies from then on had to submit their applications: tax advisors, auditors, lawyers.
But for hundreds of thousands of aid recipients and the tax advisors and law firms that represent them, the bureaucracy is now hitting back with full force. For many final invoices, the law firms have had to collect all the receipts from their clients, answer small questions from the authorities and carry out complex checks even for applications with low five-figure funding amounts. According to Capital information, the final submissions themselves can amount to 30 pages even for small restaurants, and sometimes more for larger companies. The President of the Munich Chamber of Tax Consultants, Hartmut Schwab, likes to describe how absurd the checks required can sometimes be using the example of a telephone bill for 30 euros: His colleagues would have to check whether all the calls were actually of a business nature.
“Back then, politicians had created a procedure with little bureaucracy,” says Schwab. “In fact, another bureaucratic monster has been born.” This is also why the federal states assume that the administrations will be busy checking the accounts for a long time. Berlin even expects a deal to be concluded in 2027 at the earliest – seven years after the start of the pandemic. In a preliminary balance sheet of Corona aid in mid-2022, the Federal Ministry of Economics stated that the processing of all invoices should be “completed by 2024 if possible”.
In addition, according to Capital’s research, the approximately 100,000 final processed statements nationwide have hardly resulted in the state receiving back any significant amount of overpaid aid. In many cases, however, companies even received additional payments because the forecasts for the subsidies they were entitled to were set too low. And because the authorities in most countries cannot handle the flood of applications with their own staff, almost all of them have to bring in external service providers. Large auditing groups such as KPMG, PwC and Deloitte primarily benefit from these orders, which amount to a mid-three-digit million amount nationwide. The bottom line is that the final accounting of the Corona aid will probably consume additional tax money.
For the tax advisors and auditors who look after the applications for the companies, the aftermath of the Corona aid primarily represents a massive burden. On February 21st, sheer panic broke out among many, especially among the 70,000 self-employed tax advisors. who do not have large apparatuses or law firms. On that day, they received an email on behalf of the federal and state governments, the sender being the “Service Desk for Bridging Aid”. The email, which Capital received, said that there would definitely be “no further extension of the deadline” for submitting the final submissions. In any case in which the application from a recipient of Corona aid is not submitted by March 31, the amount paid out will be “reclaimed in full” – plus interest of five percentage points above the base interest rate from the day of payment.
As a result, the warning email led to a public protest that has probably never been seen before in the discreet scene of tax advisors, auditors and lawyers. The presidents of the chambers jointly wrote a sharp letter to Federal Minister of Economics Robert Habeck and his state colleagues. The deadline until the end of March is illusory, they wrote, and the review process must be freed from the “bureaucratic rage”. At the same time, its members flooded the mailboxes of federal and state MPs with sample protest emails.
Last week, the federal and state economics ministers heard the warnings and protests and extended the submission deadline again – after several previous extensions. The new deadline now: the end of September 2024. This is the “final end date,” it says in an interesting language in a paper that the ministers approved. One consequence of the renewed extension: In the days following the decision, fewer invoices were received.
According to the decision by the federal and state governments, there should also be a streamlined examination procedure in the future in those numerous cases in which only funding amounts of up to 25,000 euros are involved – while for large sums such as the remarkable 52 million euros that the Signa -Luxury department store subsidiary KaDeWe Group received in spring 2022 solely from bridging aid III, should be further examined in more detail. For example, when requesting receipts, they want to proceed “with a sense of proportion” and instead of standard queries, only request receipts if there is a reason, such as suspicion of fraud. Documents that have already been submitted when submitting the application should not be requested again – regardless of why this was handled differently in the past. This means that up to 40 percent of invoices could be resolved “accelerated,” according to the federal-state concept, which is largely based on suggestions from the Federal Association of Public Banks (VÖB).
But the VÖB experts are dampening the expectation that the simplifications that have been decided are already sufficient to cope with the flood of applications. The concept lays the “foundation stone” for faster notifications and is therefore an “important milestone,” says the VÖB, whose member banks process the final settlements in many federal states. However, the state must further streamline the processes in order to meet the deadline. Otherwise, the responsible authorities would not be able to process all applications by the end of 2027, warns the association.
A closer look at the numbers shows what a huge mountain of applications the administration is confronted with. The so-called approval bodies of the federal states are responsible for checking the final accounts and the notices, and they have to implement the political requirements: in twelve states these are the state-owned development banks, in Bavaria the Chamber of Commerce and Industry in Munich, in North Rhine-Westphalia and Hesse the regional councils, and in Saarland the Ministry of Economic Affairs itself. The billing for the more than half a dozen sub-programs that were launched in the various phases of the pandemic and for which a total of more than four million individual applications were submitted is bundled in two packages. Each package contains several applications because companies have usually received help from several programs.
In their protest letter at the end of February, the chambers of tax advisors, auditors and lawyers pointed out that of the more than 400,000 final submissions submitted at the time, only around 15 percent had been dealt with in the final decision. A survey by Capital has now shown similarly low rates in several federal states: In Baden-Württemberg, for example, of the 126,000 billing packages expected at the beginning of March, only 75,000 were submitted and 21,000 were approved (16.7 percent of all packages to be processed). In Hamburg and North Rhine-Westphalia it was less than seven percent. In Bavaria, notices have so far been issued for around 13 percent of the total forecast of around 280,000 billing packages, and in Hesse for almost 30 percent. In Berlin, the development bank IBB has so far received half of the expected 45,000 final submissions. Around 1,500 packages have been completed.
The findings so far are equally illuminating on the question of how much the funding amounts set in the final decisions deviate from the values forecast in the original applications – i.e. whether companies have to pay back subsidies that have been paid too much or even receive additional funding. There is a clear trend here in the federal states so far: the bottom line is that hardly any repayments of any significant magnitude are to be expected. In Baden-Württemberg, the reclaims and additional payments have so far been roughly balanced (26 million euros to 24 million euros). The Free State of Bavaria even had to pay more than it subsequently demanded back (28.7 million euros compared to 24.3 million euros).
In Hamburg, according to information from the tax authorities, the billing of more than 1,500 parcels only resulted in additional demands being made to the applicants in four cases. Total: 139,357.72 euros. Conversely, the city state had to pay a total of almost 5 million euros to companies in almost 800 cases. On the other hand, Hesse currently has a positive income balance: reclaims of 48.5 million euros are offset by subsequent payments of 28.6 million euros.
In Saxony, too, there is currently a small increase in income: so far, applicants have had to reimburse an average of 6,600 euros, and the amount of additional payments to companies was an average of 4,100 euros. However, in around four out of ten applications there were no discrepancies between the preliminary registration and the final decision – a value which, according to the head of the Munich Chamber of Tax Consultants, roughly corresponds to nationwide experience.
However, the costs for service providers who support the states in processing billing are many times higher than the companies’ previous repayments to the state. In almost all of the federal states surveyed, the licensing authorities need external staff to handle the applications. Only Hesse handles the billing from the state’s own staff, who have been seconded from the financial administration, but also from other areas of the administration – which is why some other official tasks are currently being given a little shorter notice. As of the end of December, 497 external employees were employed in Baden-Württemberg, and in North Rhine-Westphalia there are currently 335 full-time positions. Bavaria can employ up to 190 full-time employees, depending on requirements. The contracts were primarily awarded to the Big Four corporations KPMG, PwC and Deloitte, but also to individual smaller auditing and consulting firms.
The federal states’ expenses for using external service providers add up to considerable amounts – as long as they state them publicly and do not prefer to keep them secret. In Baden-Württemberg alone, the responsible L-Bank has concluded a framework agreement with KPMG until mid-2025 for a volume of up to 110 million euros – plus two one-year extension options for 55 million euros each. Total volume of the package: up to 220 million euros. Other federal states are also spending a lot on external support: the Ministry of Economic Affairs in North Rhine-Westphalia announced that it expects the services of PwC and the consulting firm Protiviti to cost around 145 million euros by 2025.
KPMG is also mandated in Berlin. Information about the costs for this was not available. In Bavaria, according to the Ministry of Economic Affairs, orders went to the Big Four companies PwC, Deloitte and KPMG as well as to the personnel service provider Adecco. When asked, the ministry did not comment on the volumes of the contracts with the service providers. Overall, however, they are likely to be of a similar order of magnitude as in the regional states of North Rhine-Westphalia and Baden-Württemberg. In Saxony – as in North Rhine-Westphalia – the Sächsische Aufbaubank commissioned the service provider Protiviti to process the applications. The institute did not want to comment on the number of staff required or the costs, saying it was “internal bank information”.
When asked, the Hamburg Senate even refused to provide information about which service provider it had commissioned to support its development bank – and how much it received in return. Reference is made to operational and business secrets – even though it is a public contract with tax revenue.
For the Big Four corporations with their auditing and legal advisory divisions and other service providers, Corona aid will probably continue to be an attractive business for a long time to come. And even if the approval authorities have actually processed all applications at the end of 2027 as hoped, the Corona aid chapter is still unlikely to be closed. Some of the companies, some of whose expenses are not recognized and which have to make additional payments, could be willing to take legal action against the decisions. Corresponding proceedings before the administrative courts could then drag on for many more months or even years – and continue to keep the authorities and their service providers, but also the companies’ tax advisors, busy.
A tax advisor predicts that he expects that his law firm will have to deal with the Corona aid for a long time: “This will continue to burden us until 2030.”
