I know that you are allowed to release certain Taboo content in Germany ( Like Swastikas) and that the process is tiresome for even publishers.
Nope, not at all - especially concerning sexual content, you'll just get a 18+ rating and be done with it. You'd need some really gory or otherwise cruel stuff to get problems, most publishers only cut content because a lower age rating means more sales, so they start haggling - which is indeed a slow and tiresome process. In fact, the German rating is pretty lax about nudity, if you keep the explicit sexual content low you can easily get a lower age rating than 18+. As far as Agony Unrated is concerned, I don't see any problems with the sexual content, they'd rather complain about the other more cruel stuff that was cut out in the original game - and even then they're still far away from getting into the index of restricted and forbidden games. The restricted index would still allow the game to be sold, but it is forbidden to advertise it and you'd have to explicitly ask for it in a store, which is why they haven't been sold in online shops even before the whole online authentication issue.
It is actually a common practice to not get your game rated and just default to 18+ if the publisher knows that they don't get a lower rating, anyway. The only advantage of getting an official 18+ rating is that they can't put the game into the index anymore.
The swatiska was a special case, because over all those years a fundamental decision was missing and nobody wanted to be the one to push the issue in a court - until recently. Ironically, this decision was about whether video games can be considered to be a piece of art, because the responsible law has an explicit exception for art. Future games will have much less issues with this one.
I wouldn't say it is true that they only censor games because of ratings seeing as The last of Us for ps3 was censored here in the west overall because of Germany's censorship laws and that had nothing to do with the rating. The same goes for if I recall it was God of War being toned down for all of Europe.
All this censorship was mostly done because of Germany's stupid laws.
Most of the examples can be found on the youtube channel: "Censored Gaming" https://www.eurogamer.net/articles/2013-08-05-naughty-dog-confirms-european-version-of-the-last-of-us-censored
Germany changed its Swastika laws a few years ago but it still is a lengthy process to get your game released with them, https://www.youtube.com/watch?v=HwSmoQcVzu8
Germany is like Steam's curation team, Very unclear on what it actually wants.
Also, The PC ratings are easier to get around than console releases, hence why games like HATRED were able to release on it while Consoles required more rules to walk through. If I recall you can unpatched censored games on PC through DLC while on a console you aren't allowed to do that.
The biggest reason they downgrade the German version is the rejection by the USK seeing as you have to pay for each game getting rated for different platforms. There is an extra cost if it gets rejected and needs to get resubmitted. The whole reason console patches are slower or might never get updated is because even patches need to go through Q&A.