Covid–19 coronavirus: a cross-jurisdictional update on the pandemic’s impact on tax regulations
Ka Sen Wong
Dr Magnus Müller
Jack L. Heinberg
29 April 2020
Various support measures have been implemented by global tax authorities to protect vulnerable businesses and individuals. The measures are primarily concerned with deferring existing and upcoming tax liabilities, so as to allow for payment at a later date and minimise commercial vulnerability due to cash flow and liquidity issues.
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Deferral of tax liabilities
Businesses will be able to defer the date for payment of certain taxes to provide immediate financial relief. This will be available in respect of amounts due through the business activity statement (including Pay As You Go (PAYG) instalments), income tax assessments, fringe benefits tax assessments and excise duties.
Monthly GST reporting
Small businesses (those with an annual GST turnover of AUD20 million) or less currently operating on a quarterly reporting cycle will be able to elect for monthly reporting of GST. This will allow businesses to access GST refunds they are entitled to more efficiently, allowing for improved cash flows.
Businesses will also be allowed to vary their PAYG instalment amounts to zero for the March 2020 quarter. This will defer the immediate liability to make PAYG instalment payments. Refunds will also be available in respect of any instalment payments made for the September 2019 and December 2019 quarters.
Remission of interest and penalties
Penalties or interest that have been incurred in respect of tax liabilities from 23 January 2020 onwards will be remitted.
The Australian Taxation Office has expressed its intention to work closely with affected businesses in relation to their tax obligations. These businesses will have access to low interest payment plans to lessen the financial burden posed by immediate liabilities.
New South Wales, Queensland, Tasmania and Western Australia have all introduced differing measures to defer, waive or reduce the liability of businesses to payroll tax.
General deferral of deadline for the payment of taxes
The deadline for the payment of income taxes, VAT and salary tax is automatically deferred, for all taxpayers, by two months. No penalties or late interest will be due.
Additional deferral of deadline for payment of certain federal taxes
Any company that:
(i) is registered with the Crossroad Bank for enterprises; and
(ii) is encountering financial difficulties resulting from the outbreak and spread of Covid -19, and is able to evidence such financial difficulties (such as a decline in turnover, a significant drop in orders and/or bookings, cascading effect with business partners, etc), qualifies as an enterprise capable of benefitting from an additional deferred payment of certain federal taxes (subject to the conditions outlined below), regardless of the sector in which it operates.
This applies to income taxes, VAT and salary tax.
An application must be filed on or before 30 June 2020.
General deferral of filing deadlines
The deadline for filing VAT returns is deferred. In addition, where the deadline for filing income tax returns falls in the period 16 March and 30 April 2020 (which is, for example, the case for taxpayers whose financial years ended on 30 November 2019), the deadline for filing these returns is deferred to 30 April 2020.
It is likely that the Government will extend other filing deadlines.
Real estate withholding tax (Flemish region)
Notices of assessment for real estate withholding tax for the tax year 2020 will be issued in September 2020 (instead of May 2020).
Tax audits at business premises postponed
The Federal Public Services Finance has announced that all tax audits conducted at business premises are postponed unless they are required to safeguard the Treasury’s interest. Other tax audits continue as normal.
Other specific measures
- Allowances granted by the Government within the framework of Covid -19 will, in principle, not be subject to taxation.
- Certain local taxes will not be chargeable for a prescribed period (including the “City Tax” on hotels in the Brussels region, which is not due for the first semester of 2020 and the Walloon regional tax on retail stores which is not due for the days such stores are mandatorily closed).
Postponement of payment of tax instalments
Companies can request the deferral, without penalty, of their direct tax payments in March 2020. This applies in particular to payments of corporate income tax (CIT) and social security contributions on CIT, which were due on March 16. Where companies have already made these payments, they may request their bank to refuse the direct debit or apply for a refund. To date this deferral does not include VAT or withholding tax on employment income. Payment will be deferred for three months. The deferral can be obtained on request on completion of a form published by the French tax authorities.
The monthly payment schedule of the local business tax (CFE) or land tax can be suspended by companies through their online account with the French tax authorities, or by contacting the Centre Prélèvement Service (public service in charge of the management of automatic withholding tax system). The remaining amount will be paid at the balance adjustment time.
Tax rebates in extreme or difficult situations
Companies can request tax rebates in relation to CIT and French business tax (eg CFE and CVAE). This will not apply to VAT, assimilated taxes, and withholding taxes on employment income.
A company seeking a tax rebate must (amongst other things) provide evidence to the French tax authorities that it would be impossible for it to make the payment by demonstrating it is in an extreme or difficult situation eg that the company has experienced a decline in turnover, has other debts to pay, or is experiencing cash-flow difficulties.
The threshold required to be considered in an "extreme" or "difficult" situation appears to be significant, given that the rebate can only be granted “in the event of specific difficulties that a deferral of payment is not sufficient to overcome”. Therefore, the tax rebate will be granted on a case-by-case basis after an examination of the relevant company’s situation.
Early repayment of tax credit receivables
Companies entitled to tax credit receivables that are refundable in 2020 may request an immediate refund. The refundable amount is equal to the balance of the receivable after it has been set off against the corporate income tax due for the fiscal year 2019. This mechanism applies to all refundable tax credits in 2020, including the Research tax credit (CIR) and the Competitiveness and Employment tax credit (CICE).
Special public business protection and stabilisation fund
As part of a broad range of measures adopted in response to the Covid-19 pandemic, the German government has introduced a legislative bill with the purpose of establishing a special public business protection and stabilisation fund (Wirtschaftsstabilisierungsfonds, “WSF”). The bill has been passed by German parliament on 25 March 2020 and is expected to be signed off by the Federal Council (Bundesrat) on 27 March 2020.
The WSF is intended to support, in particular, large enterprises (excluding financial institutions) which exceed at least two of the following three thresholds in two consecutive financial years starting before 1 January 2020:
(i) balance sheet total of EUR 43 million,
(ii) revenues of EUR 50 million and
(iii) more than 249 employees on average. In special circumstances, in relation to “critical infrastructure”, other companies not meeting these criteria may also benefit from the WSF.
The measures include state aid worth up to €600 billion by way of guarantees for corporate refinancings (EUR 400 billion) and sovereign equity and mezzanine investment in companies (EUR 100 billion). The WSF may provide additional funding of up to EUR 100 billion to the state-owned bank Kreditanstalt für Wiederaufbau (“KfW”) for granting additional loans. The bill is expected to pass on Friday 27 March.
The tax treatment of the WSF is similar to that of the Federal Agency for Financial Market Stabilisation (Bundesanstalt für Finanzmarktstabilisierung – FMSA) which was established in 2008 in response to the financial crisis. The WSF will benefit from the following special tax rules:
(i) Tax status of the WSF: The WSF is not subject to trade tax, corporate income tax or value added tax. The capital income of the WSF is not subject to withholding tax and the WSF is not itself required to withhold tax from payments. Further, the WSF will be able to claim relief under applicable double tax treaties.
(ii) No special tax forfeiture rules: In the event of a participation or divestment of the WSF’s interest in a company, the German loss forfeiture rules shall not apply. In the event of a spin-off, the target company‘s tax assets, including losses to be offset, loss carry-forwards, negative income not yet offset, interest carry-forwards as well as a EBITDA carry-forward, will continue to be available.
(iii) No Real Estate Transfer Tax: The participation of the WSF in companies does not trigger any Real Estate Transfer Tax.
(iv) Timeframe: The special tax treatment set out above applies for FY2020 onwards.
Deferrals and reduction of prepayments for corporate income taxes
Taxpayers who are demonstrably both directly and materially impacted by Covid-19 can present their case to the authorities and apply for:
i) A deferral of taxes until 31 December 2020; and/or
ii) A reduction of prepayments of corporate income taxes.
The deferral applies to all taxes which are administered by the highest federal state tax authorities on behalf of the Federal Republic of Germany, in particular corporate income taxes and VAT, provided such taxes are already due (or will become due by 31 December 2020) when the application is submitted.
Applications cannot be denied by the authorities solely on the basis that the taxpayer cannot demonstrate or assess in detail the economic fallout caused by Covid-19. When considering applications, the tax authorities have been instructed not to apply the relevant tests too strictly. No interest shall be chargeable on deferred taxes.
However, in line with existing deferral rules already in place, deferral shall not be granted: (i) to the extent a third party is required to withhold and remit taxes on behalf of the taxpayer (eg an employer deducting wage taxes on behalf of employees); and (ii) with respect to such third party’s withholding obligation, where such taxes have been withheld or collected by the third party.
Any applications for the deferral of corporate income taxes which become due after 31 December 2020 or applications for prepayment reductions relating to the period after 31 December 2020, must be submitted to the tax authorities together with an explanation setting out the impact of Covid-19 on the taxpayer's business.
Relief from enforcement proceedings in respect of all outstanding tax payments and tax payments which become due in the period to 31 December 2020 shall be granted if the tax office becomes aware that a taxpayer’s business is directly and materially impacted by Covid-19 (whether as a result of direct notification by the taxpayer of otherwise). In such cases any late payment surcharges will be waived.
The position of taxpayers whose business is only indirectly impacted by Covid-19 remains subject to existing rules.
Measures regarding German trade tax
Up until 31 December 2020 taxpayers can apply for a reduction in the trade tax base amount (which is used to determine trade tax prepayments) on providing a detailed description of the taxpayer’s situation. Such applications cannot be refused solely on the basis that the taxpayer cannot demonstrate or assess in detail the economic fallout caused by Covid-19. Local municipalities are bound by the decisions of the local tax office.
Any applications for the deferral or waiver of trade tax shall, as a rule, only be filed with the local municipality, unless responsibility for both the assessment and the collection of trade tax has been assigned to a tax office.
Relief for filing of tax returns
No changes have been made to the rules imposing charges for the late filing of tax returns. However, it is considered likely that tax offices will treat applications for extensions of filing periods leniently.
Incentives to transfer non-performing trade receivables and loans (NPLs)
Incentives have been introduced to encourage the transfer by 31 December of NPLs to third party purchasers. Broadly speaking, the incentive amounts to a conversion of a portion of the transferor’s deferred tax assets (DTAs), including those not recognised in the financial statements, into tax credits within certain prescribed limits: broadly, 20% of the nominal value of the NPLs up to a maximum of EUR 2 billion in transferred NPLs.
The DTAs eligible for conversion are those relating to: (i) adjusted tax losses; and (ii) the amount of the notional return on the Allowance for Corporate Equity (ACE) tax benefit in excess of total net income, and which, at the date of the transfer, have not yet been used to reduce taxable income.
The tax credits do not generate interest and may be used to offset other taxes and social security contributions, can be transferred to third parties or other group companies, or used to claim a tax refund.
Suspension of deadline for the payment of taxes and of tax inspections and assessments
Deadlines for the payment of taxes are extended from 8 March to 31 May 2020 subject to certain exceptions.
Certain tax inspections, assessments, collections and disputes are suspended until 31 May 2020.
Income tax measures
Relief for filing of tax returns
A law has been adopted by the parliament to confirm the extension of the deadline for filing the 2019 income tax returns regarding individuals and companies taxpayers to 30 June 2020. This measure had already been announced by the direct tax authorities (ACD) on 17 March 2020. The same extension applies i) to the option for joint taxation and ii) to the option for the 20% final withholding tax on interest paid by EU/EEA paying agents which can be made by individuals until 30 June 2020 for income tax purposes.
In addition, the law provides for the suspension of the three-month limitation period applicable to lodge a complaint with the director of the ACD up to 30 June 2020.
Deferral of payments for income taxes
Companies that are subject to Luxembourg income taxes and taxpayers realising business profits, agricultural and forestry profits, and/or earnings from self-employment may (if experiencing liquidity difficulties) request:
i) a cancellation of their quarterly income tax advances (as set by the tax authorities) for the first and second quarters of 2020; this measure is limited to income taxes (excluding net wealth tax).
ii) a 4-month extension for the payment of income taxes and net wealth tax due after 29 February 2020, without a late payment penalty.
Specific forms are available on the ACD's website.
Pursuant to the progressive deconfinement, the Luxembourg indirect tax authorities (Administration de l’enregistrement, des domaines et de la TVA - AED) announced that the administrative tolerance was no longer applicable, thus VAT and subscription tax returns should now be filed as soon as possible. Enforced recovery of indirect tax debts remains however suspended for the time being.
Luxembourg has agreements with Belgium, France and Germany regarding the tax treatment of cross-border commuters, pursuant to which income earned by residents of these countries is taxable only in Luxembourg provided that they do not work outside Luxembourg for more than a prescribed number of days a year. For these employees, the number of days worked from home as a result of the Covid-19 pandemic will not be taken into account.
In response to the COVID-19 pandemic, the Dutch government has decided to take exceptional economic measures to limit the impact of the outbreak on the Dutch economy. In short, measures are introduced that aim to ensure that companies can continue to pay their employees and that provide financial support for self-employed persons to bridge these difficult times. Specifically in relation to tax, the focus lies on providing liquidity support in the short term.
Relaxation of tax deferrals and reduction of fines
Upon written (online) request, the Dutch tax authorities can grant a deferral of the payment of most taxes, including income tax, corporate income tax, turnover tax, payroll tax, gambling tax, excise duties and insurance tax. Such request only needs to mention that Covid-19 has resulted in financial difficulties for the tax payer and requires no further substantiation. On receipt of a request the tax authorities will put the collection of taxes on hold for three months. The deferral applies not only to existing tax debts but also to taxes that become due in the next three months.
At a later stage, the validity of the request may be reconsidered by the tax authorities. If a longer period of extention is needed, the tax payer can file a(nother) request which must be accompanied with more detailed information in order to allow the tax authorities to get a better view of the financial position. For entrepeneurs with a tax obligation of less than EUR 20,000 it is sufficient to send evidence that turnover or orders/reservations have decreased significantly compared to previous months. For entrepreneurs with a tax obligation of EUR 20,000 or more, a statement from a third party expert, such as an accountant or sector organisation is required.
Until further notice, no penalties will be payable if a taxpayer fails to pay its taxes on time.
Interest rates for the late filing of returns and payment of taxes have been temporarily reduced to 0.01%.
Many taxpayers pay taxes on the basis of a preliminary tax assessment. In many cases, this preliminary tax assessment will prove to have been too high if, as is expected, Covid-19 has a significant impact on the economy. A taxpayer can file a request to reduce the preliminary tax assessment, taking into account the effects of the crisis.
Fiscal Corona reserve in FY2019 taxable profit tax calculation
Companies will be allowed to form a so-called fiscal Corona-reserve in FY2019 with respect to losses they expect to incur in FY2020 in relation to COVID-19. In doing so, the FY2019 taxable profit for corporate income tax purposes is reduced by this reserve. This results in an immediate cash benefit for the relevant taxpayer because it reduces the amount of corporate income tax it has to pay to the tax authorities in relation to FY2019. The reserve, however, cannot exceed the taxable profit (calculated without the reserve) in FY2019 nor can it exceed the expected loss in 2020 in relation to the COVID-19 crisis. The government will include this in a legislative proposal that will probably be sent to Parliament on 15 September 2020. As soon as possible, the government will publish a decree in which the procedure and requirements to form the reserve will be made clear.
Work cost scheme (Werkkostenregeling)
For wage tax purposes, Dutch employers are allowed to grant benefits tax free to their employees up to 1.7% of the total wages paid to their employees for the first € 400,000 of wages and 1.2% for the remainder. This, for instance, can cover (deemed) wages enjoyed by employees in the form of dinners or drinks with employees, contributions for work-related associations, etc. As part of the COVID-19 measures, the 1.7% threshold is increased for the year 2020 to 3% for the first € 400,000 of wages paid by this employer. The idea is that this will enable employersto provide extra support to their employees, for example by giving flowers or a gift voucher and that this might give a boost to sectors, such as flower shops and flower growers, that have been severely hit by the crisis.
Blocked accounts (G-rekening)
Companies that make use of subcontractors or (temporary) employment agencies can be held secondarily liable for wage taxes and/or value added tax due by such parties. In order to mitigate the potential liability, companies can pay amounts into a blocked bank account (G-rekening) which can only be used by the subcontractor or employment agency to pay those taxes to the tax authorities. Only upon request, a surplus on this blocked account can be released in favour of the subcontractor or employment agency. In order to also give these taxpayers liquidity support and provided that they have requested for a deferral of the payment of taxes as described above, also amounts in the blocked account that are reserved to pay wage tax and/or value added tax can now be realised.
The levy of energy tax (energiebelasting) and renewable energy surcharge (heffing Opslag Duurzame Energie) will temporarily be deferred for companies that use substantial amounts of electricity or gas, such as the agricultural and horticultural industry. These taxes are levied by the energy-companies, which (on)charge these levies tot their end-users. Based on the new measures, the energy-companies do not have to charge energy tax nor renewable energy surcharge to end-users that are invoices on the basis of actual use in the months April, May and June 2020.
Consultation on tourist tax (central government / municipalities) and culture sector
The Dutch government discusses with the Association of Netherlands Municipalities (VNG) whether local municipalities can stop (provisional) local assessments on businesses and withdraw assessments that have already been made. This concerns, in particular, tourist tax. The government is also in consultation with the cultural sector as regards what further measures may be necessary.
Suspension of tax judicial and administrative proceedings
Tax proceedings before both the judicial courts and the administrative authorities will be temporarily suspended. In the case of judicial proceedings, the judge or court may agree to actions necessary to avoid irreparable damage to the rights and legitimate interests of the parties.
The suspension of tax administrative proceedings will not apply to tax deadlines, which are subject to special regulations, nor will it affect, in particular, the deadlines for submitting tax returns ("autoliquidaciones"). In this regard, there will be no changes to: (i) the voluntary period for submitting tax returns; (ii) the deadline for complying with other tax obligations (eg withholding taxes and other payments on account, prepayments); or (iii) the deadline for filing information tax returns. A deferral in the payment of tax may, however, be available.
Suspension of tax statute limitation period
The tax statute limitation period will be suspended throughout the period of the state of alarm (an initial period of 15 days) and, where appropriate, may be extended.
Extension of certain tax deadlines
The deadlines for a limited number of tax payments, both in the voluntary period ("periodo voluntario") and in the enforcement period ("periodo ejecutivo"), have been extended.
Payment deadlines for certain tax debts will be extended to 30 April 2020 or 20 May 2020 (as applicable).
The Spanish tax authorities have published guidelines explaining these measures in detail.
Deferral in the payment of taxes
Payment of taxes not exceeding EUR 30,000 where the deadline for filing the tax return and paying the tax due both fall in the period 14 March 2020 to 30 May 2020 (inclusive) will be deferred. This deferral also applies to the filing of withholding taxes, and certain other obligations such as payments on account or prepayments. The only requirement to be met by the relevant debtor (entity or individual entrepreneur) is that its turnover did not exceed EUR 6,010,121.04 in the fiscal year 2019. If the deferral is granted, the new payment period will be extended for 6 months, with no late-payment interest accruing during the first three months.
Stamp Duty exemption applicable to mortgage loans amendments
Public deeds formalising certain amendments to mortgage loans resulting from the Covid-19 crises will be exempt from Stamp Duty Tax ("Impuesto sobre Actos Jurídicos Documentados").
Deferral of VAT payments
Payments of VAT due between 20 March 2020 and 30 June 2020 are deferred. Businesses have until the end of the 2020-21 tax year to settle any liabilities that accumulate during the deferral period. The deferral is automatic, and will apply to all UK businesses.
VAT refunds and reclaims will be paid by the government as normal, and businesses should continue to file VAT returns.
Business rates holiday: retail, hospitality and leisure sectors
The government has introduced a 100% business rates holiday for retail, hospitality and leisure businesses for the 2020-21 tax year. To be eligible a business must be located in England, and operate in the retail, hospitality or leisure sectors.
Properties will benefit from the relief if they are wholly or mainly used:
i) as shops, restaurants, cafes, drinking establishments, cinemas and live music venues; or
ii) for assembly and leisure; or
iii) as hotels, guest and boarding premises, or self-catering accommodation.
Eligible businesses do not need to take any action. The holiday will be applied to their next council tax bill issued in April 2020. The government has published further guidance.
HMRC support: Time to Pay
A business which is concerned it may miss a tax payment due to the disruption caused by Covid-19, or has already missed such a payment, is eligible to receive support through HMRC's 'Time to Pay' service. Arrangements with HMRC are agreed on a case-by-case basis, and are tailored to the business's individual circumstances.
Controlled Foreign Company Rules – State Aid Recovery
Group companies which benefited from the Finance Company Exemption (FCE) under the UK's Controlled Foreign Company (CFC) rules are required to repay HMRC, following a European Commission decision that the FCE constituted unlawful State aid.
Under the State aid recovery process, HMRC sent information requests to affected group companies. Due to the disruption caused by Covid-19, the 60-day deadline for responding to information requests has been extended by a further 30 days.
Reform of off-payroll working rules postponed
Implementation of the off-payroll working rules (IR35) has been delayed from 6 April 2020 to 6 April 2021. The rules seek to ensure that workers providing services to a business through a personal service company, or another form of intermediary, pay a fair amount of income tax and National Insurance contributions where in practice they are effectively acting as an employee.
Postponement of Federal income tax filing deadline
The US Internal Revenue Service announced that the due date for filing Federal income tax returns due April 15 is automatically postponed to July 15, 2020.
No extension is provided for the filing of any other Federal tax return or Federal information return. State and local tax filings may still be required.
Deferment of payment of Federal income tax liabilities
Under guidance issued by the US Internal Revenue Service, taxpayers may defer Federal income tax payments that would otherwise be due on April 15th until July 15, 2020, without incurring penalties or interest charges.
The deferment is available only with respect to Federal income tax payments due on April 15, 2020 for the 2019 taxable year, and Federal estimated income tax payments due on April 15, 2020 for the 2020 taxable year.
The guidance does not extend the due date for the payment or deposit of any other type of Federal tax (such as excise taxes). Interest and penalties will begin to accrue on July 16, 2020 if the deferred amounts are not paid by July 15, 2020.
The IRS does not expect to delay payment of Federal tax refunds. State and local tax payments may still be required.