ITR’s COVID-19 hub: Managing the tax impact of coronavirus

Governments are slowly realising that businesses of all sizes will need more support during the uncertainty presented by the coronavirus because many companies risk bankruptcy or permanent closure during these times. Like the 2008 financial crisis, the COVID-19 crisis will have a significant impact on government coffers, business profits and the underlying backbone of some countries’ infrastructure.

Nevertheless, the OECD says it is continuing with its work on finding a unified approach to tax the digitalisation of the economy – now an even more important task as businesses must expedite their digitalisation plans.

See ITR’s latest content on the developments affecting tax here.

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• New taxes could pay for EC’s €750 billion recovery plan

• MNEs to shift burden of COVID-19 litigation to law firms

• COVID-19 Could boost national environmental tax policies

• MNEs split over tax authority behaviour post-crisis

• COVID-19 will reshape African tax landscape

• Heavy artillery: A war tax against COVID-19?

• Tax authorities must automate withholding tax refunds after COVID-19 crisis

• Understanding the OECD's analysis on the impact of COVID-19

• Courts uncertain on long-term effects of remote working

• Coronavirus disrupts corporate reporting and compliance

• Africa will be more hostile for MNEs post-coronavirus crisis

• Australia announces tax measures to tackle business disruption

• Australia updates measures to prop-up COVID-19 hit economy

• Brazil sees a rise in essential expenses during COVID-19

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• Considering post-pandemic tax policies for Brazil

• Chile takes decisive steps to mitigate the financial impact of COVID-19

• China announces tax relief measures to tackle coronavirus disruption

• China launches more measures to prop up COVID-19 hit economy

• Chinese government continues efforts to stimulate economy

• China’s STA introduces tax measures to manage COVID-19 implications

• Indonesia amends Singapore treaty and reacts to COVID-19 obstacles

• Indonesia sets out incentives for taxpayers affected by COVID-19

• Indonesia provides fresh incentives for virus-hit economy

• Litigation remains high in India amid corporate cash concerns

• Italy imposes lliquidity measures in reaction to COVID-19 emergency

• Italy oversees delivery of €25 billion decree to manage COVID-19

• Malta introduces incentives to COVID-19 affected businesses

• Mexico stands alone in its tax relief response to COVID-19

• New Zealand updates COVID-19 tax measures to include reforms to tax loss rules

• Norway implements financial support programme for businesses

• Portugal adopts transitional tax measures to manage COVID-19

• Portugal undertakes a layered tax response to mitigate COVID-19

• Singapore announces tax measures to manage COVID-19

• Deferring and reducing taxes in Switzerland to manage COVID-19

• Thailand announces tax measures to manage COVID-19 outbreak

• Large businesses relieved over UK’s IR35 delay

• UK budget curbs short-term business uncertainty

• UK will raise taxes to pay for COVID-19 spending

• UK budget breaks with EU VAT rules for financial services

• Indirect tax becomes more strategic during COVID-19

• COVID-19 will fast-track indirect tax technology changes

• Saudi Arabia’s VAT hike is the first sign of post-crisis unilateralism

• Switzerland responds to liquidity management for VAT positions to manage COVID-19

• CJEU extends VAT exemption for medical services

• Taxpayers fear COVID-19 will trigger new DSTs

• HMRC delays ‘digital link’ deadline for MTD 

• Adjusting group transfer pricing in the COVID-19 economic crisis

• Businesses continue to seek certainty on tax residency

• Assessing inter-company transactions during economic uncertainty

• Performing a comparability analysis during an economic downturn

• Transfer pricing implications of COVID-19: Revisiting pricing, contracts, and APAs

• Adapting transfer pricing policies to cope with COVID-19

• Businesses consider renegotiating APAs for an exit strategy 

As China begins to emerge from the worst period of the virus, the State Taxation Administration of China (STA) has written exclusively for ITR, explaining which measures it has implemented for all taxpayers to manage the social and economic implications of the coronavirus.

This STA article is complemented by Lewis Lu of KPMG China, explaining the measures that the country has implemented for businesses.

The STA says it is tackling all the necessary areas for taxpayers, such as offering the tax incentives announced by the government and ensuring there is economic support for businesses. The Chinese tax authority has set the marker in tax compliance too, by showing that it knows many businesses are operating with a reduced workforce that affects compliance. As such, it has introduced measures to extend deadlines and implemented procedures to limit interaction when face-to-face conversations have to take place.

Sadly, however, not all governments are taking note of what China is doing. For example, in India, where the number of infected individuals is growing, the government has been criticised for being too slow to respond. The tax department has barely changed any practices to adapt to the new – but temporary – reality.

In a similar vein, the UK’s government is trailing behind many of its European counterparts to adapt. Sources at the country’s tax authority, HM Revenue and Customs, told ITR that the lack of a clear contingency plan has left many tax officers confused. Tax officers were being told to continue their on-site tax assessments as normal, only to be told a few hours later that they should do these virtually while working from their homes despite some not being given the hardware and digital tools required to do this.

However, the UK’s Chancellor of the Exchequer Rishi Sunak is finally recognising the impact on businesses. After a tough four weeks in his new role, Sunak’s first budget statement included tax measures to help struggling businesses.

Ben Jones, head of tax in London at Eversheds Sutherland said the measures were “a good response by the Chancellor to a concerned business environment right now. Many measures designed to assist survival in temporary downturn in consequence to coronavirus issues should help small- and medium-sized businesses.”

Although the announcements focused on small- and medium-sized enterprises (SMEs) Sunak later followed up with measures for larger companies.

To the relief of many big businesses, the UK’s off-payroll working rules (IR35) that were due to be extended to the private sector on April 6 2020 will be delayed for a further year.

“In contrast to the budget measures, many of these [emergency stimulus] changes will apply to all sizes of businesses,” said Chris Sanger, head of tax policy at EY UK. “A key area that was only hinted at was ‘employment support,’ which will be essential if jobs are to be maintained over the next few months. This is intended to provide some significant breathing room for those businesses worst affected by the social-distancing policy.”

Although the UK government has provided relief measures to deal with coronavirus outbreak, the UK has yet to go as far as other European countries in proposing a VAT payment holiday.

However, IFS Director Paul Johnson said the Chancellor will have to come back with more measures.

In Italy, one of the worst affected European countries, the government has stopped all tax audits and is now pushing through urgent legislation to “cure” the economic impact of the coronavirus, which includes a number of tax incentives, tax holidays and financial injections, but mostly for individuals, families and small businesses.

In Denmark, the government has closed schools, universities and large gatherings temporarily, while also postponing tax payment deadlines to offer some relief to businesses, including for VAT and employee taxes.

Similar actions have been taken in most European countries including France, Germany, the Netherlands, Spain, Norway, Switzerland, Sweden and others, with many countries extending tax-filing deadlines as a key part of the package.

As an international business hub, Singapore’s government was quick to address the business impact of COVID-19.

For the tourism sector, Finance Minister Heng Swee Keat announced a number of measures to help businesses with their operating costs and cash flow because of the negative impact of COVID-19 in the budget statement.

EY described the 2020 Singapore budget as “SST” on Twitter, offering stabilisation measures to counter the disruptive impact of COVID19, supporting businesses and workers to amid the economic slowdown, and announcing transformative initiatives for businesses and workers to upgrade for the future.

Chris Woo, tax Leader at PwC Singapore added that “just like in Goldilocks and the Three Bears,” the deputy prime minister is “trying to find a 'not too hot not too cold' budget that finds balance between short-term needs and necessary longer-term measures”.

However, some commentators said the government did not go far enough.

Elsewhere in the Asia-Pacific region, Australia, New Zealand, Japan and Malaysia are taking steps to control the tax impact with tax filing extensions and bespoke liaison teams.

While the global panic around the coronavirus and countries like China, France, Germany, Italy, Spain and many others implemented a strict ‘lockdown’ on their citizens to contain the virus, the US was failing to respond.

However, the growing number of those infected across the country’s 50 states has forced President Donald Trump to take action.

The change of tack has allowed businesses to use employee assistant programmes. An emergency declaration also now offers taxpayers a tax payment extension.

In Canada, Puerto Rico and Costa Rica, payment and tax filings extensions have also been introduced.

Meanwhile, nations across Africa have not escaped the mass panic, with tight restrictions reportedly being introduced in Kenya, as well as economic concerns in South Africa.

The number of tax incentives, relaxed tax compliance deadlines and possible stimulus measures will grow in the coming weeks. If changes in digital taxation or BEPS was not keeping tax professionals busy enough, the fallout of the coronavirus will.

As our reporters provide more insight on COVID-19 developments, we will update the below list of stories for you:

• Indirect tax becomes more strategic during COVID-19

• Cannabis could boost government tax revenue post-crisis

• New taxes could pay for EC’s €750 billion recovery plan

• MNEs to shift burden of COVID-19 litigation to law firms

• COVID-19 Could boost national environmental tax policies

• MNEs split over tax authority behaviour post-crisis

• COVID-19 will reshape African tax landscape

• Heavy artillery: A war tax against COVID-19?

• Tax authorities must automate withholding tax refunds after COVID-19 crisis

• Understanding the OECD's analysis on the impact of COVID-19

• Courts uncertain on long-term effects of remote working

• Coronavirus disrupts corporate reporting and compliance

• Africa will be more hostile for MNEs post-coronavirus crisis

• COVID-19 will fast-track indirect tax technology changes

• CJEU extends VAT exemption for medical services

• Taxpayers fear COVID-19 will trigger new DSTs

 

• Australia announces tax measures to tackle business disruption

• Australia updates measures to prop-up COVID-19 hit economy

• Brazil sees a rise in essential expenses during COVID-19

• Brazil takes measures to support the economy against COVID-19

• Considering post-pandemic tax policies for Brazil

• Malta introduces incentives to COVID-19 affected businesses

• New Zealand updates COVID-19 tax measures to include reforms to tax loss rules

• Norway implements financial support programme for businesses

• Portugal adopts transitional tax measures to manage COVID-19

• Portugal undertakes a layered tax response to mitigate COVID-19

• Singapore announces tax measures to manage COVID-19

• Deferring and reducing taxes in Switzerland to manage COVID-19

• Switzerland responds to liquidity management for VAT positions to manage COVID-19

• Thailand announces tax measures to manage COVID-19 outbreak

• Large businesses relieved over UK’s IR35 delay

• UK budget curbs short-term business uncertainty

• UK will raise taxes to pay for COVID-19 spending

• HMRC delays ‘digital link’ deadline for MTD 

• UK budget breaks with EU VAT rules for financial services