Australia
Deferral of tax liabilities: Businesses will be able to defer the date for payment of certain taxes up to 12 September 2020. This will be available for amounts due through the business activity statement (including PAYG instalments), income tax assessments, fringe benefits tax assessments and excise duties.
Monthly GST reporting: Small businesses (with an annual GST turnover of A$20m or less) currently operating on a quarterly reporting cycle will be able to elect for monthly GST reporting. This will enable businesses to access GST refunds they are entitled to more quickly, and so improve cashflows.
PAYG adjustments: 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 eligible for remission.
Payment plans: 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.
Payroll tax: All Australian state and territory governments have introduced differing measures to defer, waive or reduce the liability of businesses to payroll tax in their respective jurisdictions.
Relaxation of residency tests: Further administrative relief will be available to foreign entities in Australia to prevent adverse tax residency consequences due to travel restrictions imposed as a result of Covid-19. This relief will take the form of a relaxation of the current tests applied to determine residency, insofar as they are materially impacted by Covid-19.
Foreign entities are ordinarily considered residents of Australia when their central management and control is located in Australia. Where this occurs as a result of travel restrictions imposed as a result of Covid-19 (e.g. where a board of directors is required to convene in Australia due to movement restrictions), the ATO will not alter the entity’s residency status on this basis alone.
Similarly, where travel restrictions have caused the unplanned presence of a foreign entity’s employees in Australia, their presence will not amount to a ‘permanent establishment’ of the employer entity in Australia for tax purposes (provided the entity did not have a permanent establishment in Australia prior to Covid-19).
Importantly, the ATO will continue to make residency determinations on a case by case basis, and this relief will not be available where factors other than Covid-19 have materially influenced an entity’s residency for tax purposes.
Belgium
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, or a cascading effect with business partners), 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.
Tax exemption of impaired receivables: Impaired receivables are exempt from tax subject to satisfying a number of conditions, including proof of ‘special circumstances’ justifying the timing of the impairment. Administrative guidelines have been issued stating that the Covid-19 crisis is to be treated as ‘special circumstances’ for this purpose. This measure will help profitable businesses, as their current year taxable profit will be reduced. However, for those companies that are currently loss making, it will not be possible to set-off tax losses in their entirety against next year’s profits.
Other specific measures: Allowances granted by the government within the framework of Covid-19 will, in principle, not be subject to tax.
Notices of assessment for real estate withholding tax in the Flemish Region for the tax year 2020 will be issued in September 2020 (instead of May 2020).
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).
France
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 16 March. Companies that have already made these payments may ask 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 (e.g. 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, e.g. 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).
Germany
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 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 €43m; (ii) revenues of €50m; 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 €600bn by way of guarantees for corporate refinancings (€400bn) and sovereign equity and mezzanine investment in companies (€100bn). The WSF may provide additional funding of up to €100bn to the state-owned bank Kreditanstalt für Wiederaufbau (KfW) for granting additional loans.
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. 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. 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 an EBITDA carry-forward, will continue to be available. The participation of the WSF in companies does not trigger any real estate transfer tax. The special tax treatment set out above applies for FY 2020 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: a deferral of taxes until 31 December 2020; and/or 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 (e.g. 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.
Enforcement relief: 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. In such cases any late payment surcharges will be waived.
The position of taxpayers whose business is 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 their 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.
Italy
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 €2bn 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.
Luxembourg
Relief for filing of income tax returns: For companies which are subject to Luxembourg income taxes (including corporate income tax and municipal business tax), the deadline for submitting income tax returns is postponed to 30 June 2020 according to a newsletter issued by the Luxembourg income tax authorities (Administration des contributions directes, ‘ACD’).
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); and (ii) a four-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.
VAT measures: The Luxembourg indirect tax authorities (Administration de l’enregistrement, des domaines et de la TVA, ‘AED’) announced that, until further notice, penalties will not be imposed for the late filing of VAT returns.
Cross-border commuters: 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 employees resident in Belgium or France, the number of days worked from home as a result of the Covid-19 pandemic will not be taken into account.
Netherlands
General: In response to the Covid-19 pandemic, the Dutch government has taken exceptional economic measures to limit the impact of the outbreak on the Dutch economy. In short, measures have been introduced that aim to ensure that companies can continue to pay their employees and provide financial support for the self-employed. Specifically in relation to tax, the focus is on providing short-term liquidity support.
Relaxation of tax deferrals and reduction of fines: Upon written request, the Dutch tax authorities can grant a deferral of the payment of income tax, corporate income tax, turnover tax and payroll tax. The request need only state that Covid-19 has resulted in financial difficulties for the taxpayer. No further substantiation is required. On receipt of a request the tax authorities will put the collection of taxes on hold for three months. At a later stage, the validity of the request may be reconsidered by the tax authorities. If an extension is required, the taxpayer can file another request which must be accompanied with more detailed information in order to enable the tax authorities to properly assess the financial position.
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.
Energy tax: The energy tax levy (energiebelasting) and renewable energy surcharge (heffing Opslag Duurzame Energie) will be temporarily deferred for companies that use substantial amounts of electricity or gas, such as companies that operate in the agricultural and horticultural industry. The government will finalise the details of this measure in consultation with relevant stakeholders, including the energy-companies that (on)charge these levies to their end-users.
Consultation on tourist tax and culture sector: The Dutch government is in discussions 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 in response to Covid-19.
Spain
Suspension of tax judicial and administrative proceedings: Tax proceedings before both the judicial courts and the administrative authorities are temporarily suspended. In judicial proceedings, the judge or court may agree to certain actions that are considered 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 (e.g. withholding taxes and other payments on account or prepayments); or (iii) the deadline for filing information tax returns. A deferral of 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. (A ‘state of alarm’ was declared on 14 March for an initial period of 15 days but has since been extended until 12 April.)
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.
Deferral in the payment of taxes: The payment of taxes not exceeding €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 payment 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) is that its turnover did not exceed €6,010,121.04 in the fiscal year 2019. If the deferral is granted, the new payment period will be extended by six months, with no late-payment interest accruing during the first three months.
Stamp duty exemption for certain 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’).
Commentary
Overall, the measures taken by the Spanish central tax authorities have been seen as positive but lacking in ambition, particularly in light of the strict lock-down on most industrial activity that is now in force.
In particular, and having regard to the measures taken by other European countries, the deferral for the payment of taxes could usefully be extended to all taxes, the filing and payment of which is due to occur during the state of alarm period, regardless of (i) turnover; and (ii) the amount of tax due. This would have an immediate effect on liquidity and increase the chances of Spanish companies surviving the crisis.
In addition, tax refunds due to Spanish tax payers could be guaranteed and made immediately available.
United Kingdom
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 it 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. No interest will accrue on any amount deferred. The deferral does not apply to VAT payments made through HMRC’s mini-one stop shop (MOSS) system, which allows providers of cross-border digital services to EU consumers to make VAT via HMRC instead of the applicable EU tax authority.
Business rates holiday for certain sectors: The government has introduced a 100% business rates holiday for retail, hospitality and leisure businesses for 2020/21. 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; (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.
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 they are tailored to the business’s individual circumstances.
CFC rules and 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 NICs where in practice they are effectively acting as an employee.
Commentary
The outbreak of Covid-19 is having a significant impact on the majority of businesses across all sectors. In particular, many businesses are concerned that cash-flow and liquidity issues will impact their ability to meet UK tax liabilities.
The welcomed tax measures introduced by the UK Treasury, such as the
deferral of VAT payments, aim to keep cash in the hands of businesses as they
navigate what is hoped to be a short-term decline in economic conditions.
As HMRC have indicated they are open to approaches from businesses
struggling to meet their tax liabilities as a consequence of Covid-19, we
expect HMRC will be supportive and sympathetic to businesses which seek to
defer other types of tax liability. We
advise firms to communicate any such tax concerns with HMRC by approaching
their usual HMRC contact, or by using the dedicated hotline.
The impact of Covid-19 on public health and the economy is still uncertain,
and it is possible that the UK Treasury will announce further measures as the
economic situation develops.
United States
Postponement of federal income tax filing deadline: The US Internal Revenue Service (IRS) announced that the due date for filing federal income tax returns and federal gift and generation skipping tax returns due 15 April is automatically postponed to 15 July 2020. The IRS has also postponed the due date for reporting model 2 FFIs and participating FFIs to file their annual FATCA information reporting forms (IRS form 8966) from 31 March to 15 July 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: Taxpayers may defer federal income tax payments that would otherwise be due on 15 April until 15 July 2020, without incurring penalties or interest charges.
The deferment is available only with respect to federal income tax payments due on 15 April 2020 for the 2019 taxable year, and federal estimated income tax payments due on 15 April 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 16 July 2020 if the deferred amounts are not paid by 15 July 2020.
The IRS does not expect to delay payment of federal tax refunds. State and local tax payments may still be required.
Coronavirus Aid, Relief, and Economic Security Act (CARES Act): On 27 March 2020, the CARES Act was enacted to provide emergency economic assistance to those affected by Covid-19.
Employee retention credit: Certain employers that either have (i) operations suspended as a result of a governmental order relating to Covid-19 or (ii) revenues decline by more than 50% compared to the same quarter in 2019, may be eligible for a refundable payroll tax credit of up to 50% of qualified wages against the employer portion of certain payroll taxes, up to $10,000 per employee. The credit is limited to: (i) for eligible employers with more than 100 full-time employees, qualified wages paid to employees while furloughed as a result of Covid-19; and (ii) for eligible employers with 100 or fewer full-time employees, all qualified wages paid to employees during the time periods described above, regardless of whether the employees are furloughed or actively working.
Delay of payment of employer payroll taxes: Payroll taxes payable between the date the CARES Act was enacted and 1 January 2021 generally may be deferred and paid in two installments: 50% by 31 December 2021 and 50% by 31 December 2022.
Modification of net operating loss rules: Corporate taxpayers have increased flexibility in using net operating losses (NOLs). NOLs from 2018, 2019 and 2020 are permitted to be carried back for up to five years (no carrybacks are permitted under current law), which may result in refunds for such years. NOLs may also be used to fully offset taxable income for 2020 and prior taxable years (under current law the NOL deduction cannot exceed 80% of taxable income).
Acceleration of corportate alternative minimum tax (AMT) tax credits: Corporate taxpayers with AMT credits that previously were generally required to be recovered over four years starting in 2018, generally should be permitted to recover such credits in 2018 and 2019, or if the taxpayer elects, entirely in 2018.
Relaxation of business interest expense deduction: The limitation on the ability of corporate taxpayers to deduct business interest expense has been relaxed from 30% of adjusted taxable income to 50%. In addition, taxpayers may use their 2019 adjusted taxable income to determine the limitation applicable for 2020.
Temporary exception of excise tax: Distilled spirits used or contained in hand sanitiser produced and distributed in accordance with certain federal guidelines relating to Covid-19 are not subject to excise tax.
Exclusion for certain employer payments of student loans: Employers may make certain payments towards an employee’s student loan expenses on a tax-free basis if such payments are made before 1 January 2021.
Australia
Deferral of tax liabilities: Businesses will be able to defer the date for payment of certain taxes up to 12 September 2020. This will be available for amounts due through the business activity statement (including PAYG instalments), income tax assessments, fringe benefits tax assessments and excise duties.
Monthly GST reporting: Small businesses (with an annual GST turnover of A$20m or less) currently operating on a quarterly reporting cycle will be able to elect for monthly GST reporting. This will enable businesses to access GST refunds they are entitled to more quickly, and so improve cashflows.
PAYG adjustments: 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 eligible for remission.
Payment plans: 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.
Payroll tax: All Australian state and territory governments have introduced differing measures to defer, waive or reduce the liability of businesses to payroll tax in their respective jurisdictions.
Relaxation of residency tests: Further administrative relief will be available to foreign entities in Australia to prevent adverse tax residency consequences due to travel restrictions imposed as a result of Covid-19. This relief will take the form of a relaxation of the current tests applied to determine residency, insofar as they are materially impacted by Covid-19.
Foreign entities are ordinarily considered residents of Australia when their central management and control is located in Australia. Where this occurs as a result of travel restrictions imposed as a result of Covid-19 (e.g. where a board of directors is required to convene in Australia due to movement restrictions), the ATO will not alter the entity’s residency status on this basis alone.
Similarly, where travel restrictions have caused the unplanned presence of a foreign entity’s employees in Australia, their presence will not amount to a ‘permanent establishment’ of the employer entity in Australia for tax purposes (provided the entity did not have a permanent establishment in Australia prior to Covid-19).
Importantly, the ATO will continue to make residency determinations on a case by case basis, and this relief will not be available where factors other than Covid-19 have materially influenced an entity’s residency for tax purposes.
Belgium
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, or a cascading effect with business partners), 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.
Tax exemption of impaired receivables: Impaired receivables are exempt from tax subject to satisfying a number of conditions, including proof of ‘special circumstances’ justifying the timing of the impairment. Administrative guidelines have been issued stating that the Covid-19 crisis is to be treated as ‘special circumstances’ for this purpose. This measure will help profitable businesses, as their current year taxable profit will be reduced. However, for those companies that are currently loss making, it will not be possible to set-off tax losses in their entirety against next year’s profits.
Other specific measures: Allowances granted by the government within the framework of Covid-19 will, in principle, not be subject to tax.
Notices of assessment for real estate withholding tax in the Flemish Region for the tax year 2020 will be issued in September 2020 (instead of May 2020).
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).
France
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 16 March. Companies that have already made these payments may ask 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 (e.g. 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, e.g. 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).
Germany
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 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 €43m; (ii) revenues of €50m; 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 €600bn by way of guarantees for corporate refinancings (€400bn) and sovereign equity and mezzanine investment in companies (€100bn). The WSF may provide additional funding of up to €100bn to the state-owned bank Kreditanstalt für Wiederaufbau (KfW) for granting additional loans.
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. 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. 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 an EBITDA carry-forward, will continue to be available. The participation of the WSF in companies does not trigger any real estate transfer tax. The special tax treatment set out above applies for FY 2020 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: a deferral of taxes until 31 December 2020; and/or 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 (e.g. 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.
Enforcement relief: 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. In such cases any late payment surcharges will be waived.
The position of taxpayers whose business is 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 their 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.
Italy
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 €2bn 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.
Luxembourg
Relief for filing of income tax returns: For companies which are subject to Luxembourg income taxes (including corporate income tax and municipal business tax), the deadline for submitting income tax returns is postponed to 30 June 2020 according to a newsletter issued by the Luxembourg income tax authorities (Administration des contributions directes, ‘ACD’).
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); and (ii) a four-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.
VAT measures: The Luxembourg indirect tax authorities (Administration de l’enregistrement, des domaines et de la TVA, ‘AED’) announced that, until further notice, penalties will not be imposed for the late filing of VAT returns.
Cross-border commuters: 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 employees resident in Belgium or France, the number of days worked from home as a result of the Covid-19 pandemic will not be taken into account.
Netherlands
General: In response to the Covid-19 pandemic, the Dutch government has taken exceptional economic measures to limit the impact of the outbreak on the Dutch economy. In short, measures have been introduced that aim to ensure that companies can continue to pay their employees and provide financial support for the self-employed. Specifically in relation to tax, the focus is on providing short-term liquidity support.
Relaxation of tax deferrals and reduction of fines: Upon written request, the Dutch tax authorities can grant a deferral of the payment of income tax, corporate income tax, turnover tax and payroll tax. The request need only state that Covid-19 has resulted in financial difficulties for the taxpayer. No further substantiation is required. On receipt of a request the tax authorities will put the collection of taxes on hold for three months. At a later stage, the validity of the request may be reconsidered by the tax authorities. If an extension is required, the taxpayer can file another request which must be accompanied with more detailed information in order to enable the tax authorities to properly assess the financial position.
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.
Energy tax: The energy tax levy (energiebelasting) and renewable energy surcharge (heffing Opslag Duurzame Energie) will be temporarily deferred for companies that use substantial amounts of electricity or gas, such as companies that operate in the agricultural and horticultural industry. The government will finalise the details of this measure in consultation with relevant stakeholders, including the energy-companies that (on)charge these levies to their end-users.
Consultation on tourist tax and culture sector: The Dutch government is in discussions 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 in response to Covid-19.
Spain
Suspension of tax judicial and administrative proceedings: Tax proceedings before both the judicial courts and the administrative authorities are temporarily suspended. In judicial proceedings, the judge or court may agree to certain actions that are considered 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 (e.g. withholding taxes and other payments on account or prepayments); or (iii) the deadline for filing information tax returns. A deferral of 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. (A ‘state of alarm’ was declared on 14 March for an initial period of 15 days but has since been extended until 12 April.)
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.
Deferral in the payment of taxes: The payment of taxes not exceeding €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 payment 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) is that its turnover did not exceed €6,010,121.04 in the fiscal year 2019. If the deferral is granted, the new payment period will be extended by six months, with no late-payment interest accruing during the first three months.
Stamp duty exemption for certain 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’).
Commentary
Overall, the measures taken by the Spanish central tax authorities have been seen as positive but lacking in ambition, particularly in light of the strict lock-down on most industrial activity that is now in force.
In particular, and having regard to the measures taken by other European countries, the deferral for the payment of taxes could usefully be extended to all taxes, the filing and payment of which is due to occur during the state of alarm period, regardless of (i) turnover; and (ii) the amount of tax due. This would have an immediate effect on liquidity and increase the chances of Spanish companies surviving the crisis.
In addition, tax refunds due to Spanish tax payers could be guaranteed and made immediately available.
United Kingdom
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 it 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. No interest will accrue on any amount deferred. The deferral does not apply to VAT payments made through HMRC’s mini-one stop shop (MOSS) system, which allows providers of cross-border digital services to EU consumers to make VAT via HMRC instead of the applicable EU tax authority.
Business rates holiday for certain sectors: The government has introduced a 100% business rates holiday for retail, hospitality and leisure businesses for 2020/21. 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; (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.
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 they are tailored to the business’s individual circumstances.
CFC rules and 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 NICs where in practice they are effectively acting as an employee.
Commentary
The outbreak of Covid-19 is having a significant impact on the majority of businesses across all sectors. In particular, many businesses are concerned that cash-flow and liquidity issues will impact their ability to meet UK tax liabilities.
The welcomed tax measures introduced by the UK Treasury, such as the
deferral of VAT payments, aim to keep cash in the hands of businesses as they
navigate what is hoped to be a short-term decline in economic conditions.
As HMRC have indicated they are open to approaches from businesses
struggling to meet their tax liabilities as a consequence of Covid-19, we
expect HMRC will be supportive and sympathetic to businesses which seek to
defer other types of tax liability. We
advise firms to communicate any such tax concerns with HMRC by approaching
their usual HMRC contact, or by using the dedicated hotline.
The impact of Covid-19 on public health and the economy is still uncertain,
and it is possible that the UK Treasury will announce further measures as the
economic situation develops.
United States
Postponement of federal income tax filing deadline: The US Internal Revenue Service (IRS) announced that the due date for filing federal income tax returns and federal gift and generation skipping tax returns due 15 April is automatically postponed to 15 July 2020. The IRS has also postponed the due date for reporting model 2 FFIs and participating FFIs to file their annual FATCA information reporting forms (IRS form 8966) from 31 March to 15 July 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: Taxpayers may defer federal income tax payments that would otherwise be due on 15 April until 15 July 2020, without incurring penalties or interest charges.
The deferment is available only with respect to federal income tax payments due on 15 April 2020 for the 2019 taxable year, and federal estimated income tax payments due on 15 April 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 16 July 2020 if the deferred amounts are not paid by 15 July 2020.
The IRS does not expect to delay payment of federal tax refunds. State and local tax payments may still be required.
Coronavirus Aid, Relief, and Economic Security Act (CARES Act): On 27 March 2020, the CARES Act was enacted to provide emergency economic assistance to those affected by Covid-19.
Employee retention credit: Certain employers that either have (i) operations suspended as a result of a governmental order relating to Covid-19 or (ii) revenues decline by more than 50% compared to the same quarter in 2019, may be eligible for a refundable payroll tax credit of up to 50% of qualified wages against the employer portion of certain payroll taxes, up to $10,000 per employee. The credit is limited to: (i) for eligible employers with more than 100 full-time employees, qualified wages paid to employees while furloughed as a result of Covid-19; and (ii) for eligible employers with 100 or fewer full-time employees, all qualified wages paid to employees during the time periods described above, regardless of whether the employees are furloughed or actively working.
Delay of payment of employer payroll taxes: Payroll taxes payable between the date the CARES Act was enacted and 1 January 2021 generally may be deferred and paid in two installments: 50% by 31 December 2021 and 50% by 31 December 2022.
Modification of net operating loss rules: Corporate taxpayers have increased flexibility in using net operating losses (NOLs). NOLs from 2018, 2019 and 2020 are permitted to be carried back for up to five years (no carrybacks are permitted under current law), which may result in refunds for such years. NOLs may also be used to fully offset taxable income for 2020 and prior taxable years (under current law the NOL deduction cannot exceed 80% of taxable income).
Acceleration of corportate alternative minimum tax (AMT) tax credits: Corporate taxpayers with AMT credits that previously were generally required to be recovered over four years starting in 2018, generally should be permitted to recover such credits in 2018 and 2019, or if the taxpayer elects, entirely in 2018.
Relaxation of business interest expense deduction: The limitation on the ability of corporate taxpayers to deduct business interest expense has been relaxed from 30% of adjusted taxable income to 50%. In addition, taxpayers may use their 2019 adjusted taxable income to determine the limitation applicable for 2020.
Temporary exception of excise tax: Distilled spirits used or contained in hand sanitiser produced and distributed in accordance with certain federal guidelines relating to Covid-19 are not subject to excise tax.
Exclusion for certain employer payments of student loans: Employers may make certain payments towards an employee’s student loan expenses on a tax-free basis if such payments are made before 1 January 2021.
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