The COVID-19 public health crisis has caused considerable damage to the economy of affected countries and to their trade partners. In an effort to mitigate the financial impact of this extraordinary crisis, measures are being implemented across Europe and the globe.
In the European Union, the European Commission has adopted a Temporary Framework to enable Member States to use the flexibility contemplated under State aid rules to support the economy in the context of the COVID-19 crisis. Along with a variety of other support measures that may be used by Member States under existing State aid rules, the Temporary Framework enables EU Member States to preserve the continuity of economic activity during and after the COVID-19 crisis.
Executive Vice President Margrethe Vestager, in charge of competition policy, said: “The economic impact of the COVID-19 outbreak is severe. We need to act fast to manage the impact as much as we can. And we need to act in a coordinated manner. This new Temporary Framework enables Member States to use the full flexibility foreseen under State aid rules to support the economy at this difficult time.”
The Temporary Framework provides for five types of aid, the first of which relates to direct grants, selective tax advantages and advance payments. In this context, Member States will be able to set up schemes to grant up to €800,000 to a company to address urgent liquidity needs.
Given the limited size of the EU budget, the main economic response will come from Member States’ national budgets. Affected countries are implementing measures to mitigate the impact on business enterprises, which includes special tax measures such as the deferral of payment obligations for corporate income taxes, wage taxes, VAT and excise taxes.
Some examples are detailed here below:
On 19 March 2020, the German Federal Ministry of Finance and the supreme tax authorities of the German States have issued circulars introducing relief measures to mitigate the economic effects of the Corona virus (COVID-19/SARS-CoV-2). Such measures include:
- Interest-free tax deferrals – Until 31 December 2020, taxpayers, who are directly and significantly affected by the Corona crisis, can apply for a deferral of various taxes (personal or corporate income tax, trade tax, solidarity surcharge, VAT) that are or become due until such date. Requests for deferral shall not be refused because a taxpayer is unable to demonstrate in detail the damages incurred as a result of the Corona virus. Moreover, the examination of the conditions precedent for such requests shall not be subject to strict requirements. As a general rule, interest on the deferred tax amounts can be waived by the tax authorities. In principle, a tax deferral will not be granted in respect of taxes that have to be withheld for the account of a third party (e.g. payroll taxes). Applications for a deferral of taxes that become due after 31 December 2020 shall be subject to stricter substantiation requirements.
- Adjustment of tax prepayments – Under the aforementioned circumstances, affected taxpayers may also apply for a reduction of their income or trade tax prepayments. The above rules apply accordingly.
- Temporary waiver of enforcement measures – If a tax office is informed or otherwise becomes aware that a taxpayer is directly and significantly affected by the Corona crisis, enforcement measures shall be stayed until 31 December 2020 in respect of taxes that are in arrears of become due until such date.
- Waiver of late payment penalties – In the above cases, late payment penalties arising between 19 March and 31 December 2020 shall be waived.
- Concessions by other tax and customs authorities – In case of taxpayers affected by the Corona crisis, the Federal Central Tax Office and the customs authorities may be expected to make similar concessions.
In addition to the aforementioned tax-related measures, the Federal Government also announced various other financial support measures
On March 15, 2020, the French government has published emergency measures to support the French economy dealing with the coronavirus (COVID19) epidemic. The most significant tax measures announced by the French government regarding the provision of financial aid to companies include:
- Postponement of tax installments and social security contributions: a deferral of payment up to three months –without justification, formalities, or penalties – is granted for installments due in respect of direct taxes i.e., corporate income taxes, business tax (French “CFE”), property tax and tax on wages (French “taxe sur les salaires”) and social security contributions.
This postponement does not apply to value added tax (“VAT”) or to personal income tax withheld at source by employers.
Companies that have already paid their installments due in March 2020 may apply for a refund from the French authorities.
- Acceleration of VAT and R&D tax credits reimbursements – The tax relief announcement does not presently indicate whether this tax relief treatment will be extended to other tax credits.
- Rebates of direct tax and social security charges will be granted to certain companies facing extreme difficulties as a result of the COVID-19 crisis, on a case-by-case basis after an individualized review of the company’s situation.
- Suspension of tax audits of companies in the most affected sectors.
Other non-tax related measures include the ability for companies to apply to financial institutions for loans and cash advances guaranteed by the State, up to a total amount of €300 billion.
The Netherlands, Luxembourg and Belgium have all implemented measures aiming at deferring tax payments obligations and implemented additional support packages similar to those in neighboring countries. Generally, there are three conditions that must be satisfied in order to obtain a grant of tax deferral: the event for which the request for tax deferral relates must be recognized as having a deleterious effect on the economic activity of certain businesses over a specific period of time; the business must be experiencing temporary financial difficulties; there must be a causal link between the difficulties and the event for which the request for tax referral relates.
The UK government has published emergency measures to support businesses dealing with the COVID-19 crisis. The tax related measures include:
- HMRC phone helpline to support businesses and self-employed people concerned about not being able to pay their tax due to coronavirus;
- All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service;
Several non-tax related measures are also taken to support small and medium enterprises and larger firms, such as a new lending facility to support liquidity for larger firms.
Outside of Europe
The US Federal government and the various state governments have begun enacting legislation and providing other administrative tax relief in response to the Covid-19 pandemic. Developments are proceeding rapidly and affected industries should be proactive to ensure that US tax relief efforts extend to investors in US companies and non-US companies with a US presence.
The Spring 2020 edition of our firm’s Asia Tax Bulletin series details the various tax measures implemented throughout Asia in response to COVID-19.
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