CORPORATE Law to reduce bureaucracy: Draft bureaucracy relief act IV presented – the next paper tiger!

It is undisputed: Bureaucratic hurdles make life enormously more difficult for private individuals, but above all for companies. The fact that the German government is now addressing the issue of bureaucracy reduction – as announced in the coalition agreement – is therefore very welcome in principle: after the summer break, the Cabinet adopted critical points for a fourth Bureaucracy Reduction Act (BEG IV). It thus took a first step towards (further) bureaucracy reduction. However, the federal government has yet to achieve a significant breakthrough.

Bureaucracy as an additional stumbling block in difficult times

The current political and global economic situation is a challenge for companies in many respects and, in some cases, requires enormous adjustments of a strategic nature and day-to-day processes – in all company areas. Excessive bureaucracy is an additional stumbling block, especially during significant upheaval and change.

In this respect, it is more than welcome that the federal government is tackling the issue and intends to change many laws with the Fourth Bureaucracy Reduction Act. The aim is to make processes in different areas more efficient and reduce the burden on companies by cutting unnecessary bureaucracy. Above all, the Bureaucracy Reduction Act intends to create a new business scope.

Government presents a key issues paper as the basis for a fourth Bureaucracy Reduction Act – the third Bureaucracy Reduction Act dates back to 2019 – which was drawn up based on a structured survey of associations on bureaucracy reduction. They identified the potential for reducing red tape from the center of business and society. The Federal Statistical Office then categorized and ranked the approximately 450 proposals for reducing bureaucracy, which were made by almost 60 associations, quantitatively and qualitatively, according to their potential for reducing red tape. They now form the basis for the key issues paper.

Content of the critical issues paper for companies

The key issues paper covers many different areas. Some of the areas that will be of particular importance to companies and entrepreneurs – including in their role as employers – include the following:

• Reduction of information obligations: The information obligations for companies are to be reduced/reformed. The consequences should affect areas of law such as energy and foreign trade, economic statistics, specific commitments from the Trade and Crafts Code, and general industry- and profession-specific regulations. There is real potential to reduce the burden here.
• Electronic form instead of written form as a principle: Digitalization is to make further inroads into the legal system. In the future, the written form will no longer be the standard form for contracts: Electronic form will replace the written form as the standard for contracts, and the German Civil Code will have to be amended accordingly. This effect should make legal transactions more efficient, especially in a business context.
• Shortening retention periods: Another point that has received more media attention than other vital points is the planned shortening of retention periods for accounting documents under commercial and tax law. In the future, documents would no longer have to be kept for ten years but for eight. However, whether this reduction will lead to overall economic relief remains to be observed.
• Electronic form in labor law: In the HR sector, the Bureaucracy Reduction Act could improve overly rigid processes in some areas:Employers are to be relieved, for example, by an adjustment to the law on proof: it should no longer be necessary to provide separate evidence of essential contractual conditions following the reform by the Bureaucracy Relief Act. However, this only applies if the employment contract has already been concluded in a statutory electronic form that replaces the written form. Therefore, you cannot convert old contracts so simply. However, according to the current status, some sectors will be exempt from this regulation, namely economic sectors under Section 2a (1) of the Act to Combat Clandestine Employment (e.g., passenger transport, freight forwarding, transport and logistics, showmen and for example, forestry companies).It should also be possible for employment references to be issued in electronic form in the future. This method may also reduce the workload of HR departments, although the extent to which this will be the case is questionable.Last, the Bureaucracy Reduction Act IV also focuses on notice obligations for employers, specifically notice obligations from the Working Hours Act and Youth Employment Protection Act. The plan is to replace traditional notices in paper form with a “digital notice.” This method could be made possible by publishing the information on the company intranet so all employees can access the data. It is a good approach that they should implement in many other areas of employer-employee communication.

In case of doubt, however, only the exemptions from the various information obligations described in the draft will reduce the burden on the economy. Everything else is a storm in a teacup. Whether companies are now allowed to keep documents for eight instead of 10 years or issue a certificate electronically instead of physically does not create any relevant room for maneuver to develop innovations.

Lack of innovation

In any case, the topic of “innovation” is neglected in this draft despite the precise demands of the associations. In particular, there needs to be more approaches to drive forward centralized digital access solutions for the economy nationwide. Although the platform www.mein-unternehmenskonto.de already exists on an ELSTER basis, far too few services are organized centrally and nationwide as a “single point of contact” for all public authority and administrative processes. The risk of a digital patchwork continues here, as individual federal states already have digital solutions, some of which have been further developed. For example, there needs to be more solutions for the nationwide standardized digital establishment of companies and the associated communication with authorities, digital business registrations, or a central register and reporting interface for statistical reports. Consideration could also be given to abolishing fees for the provision of binding information by the tax office. 57 associations have submitted over 440 proposals to the federal government for reducing bureaucracy. We wish those responsible more courage and foresight in their consideration.

Conclusion

The Bureaucracy Reduction Act is not a significant step forward that can relieve companies of the excessive burden of overly rigid bureaucratic obligations. The relief is not based on a grand concept: The key points paper looks more like a patchwork quilt made up of the numerous proposals put forward by the associations – each characterized by their very own interests – without much of a framework.

Of course, reducing bureaucracy is not a one-off project but a process that needs to be constantly revitalized and adapted to current requirements. In this respect, small-scale rather than large-scale may be appropriate in principle. However, it remains to be seen whether the legislator will succeed in developing a helpful draft bill for genuine bureaucracy reduction from the critical points of the paper.