COVID-19: How To Optimize Your Tax Position  

| 4/1/2020
COVID-19: How To Optimize Your Tax Position

5 MIN READ

As the world continues to respond to the impact of Covid-19, an increasing number of countries are introducing tax facilites to support businesses and the economy. As governments share an abundant amount of material at a startling rate, businesses have to be well-read to keep abreast of what is available and to understand what applies to them. At a time when businesses are either focused on contingency planning or actively implementing new operational strategies to cope with this extraordinary situation, it may be a challenge to identify all the potential relief available.

The Tax Action list outlines the tax areas which businesses will benefit from reviewing now. The practical checklist provides an overview of the types of relief that may be available and the areas of business that are most likely to be impacted by these unique tax changes. Businesses that can optimize their tax position in these uncertain times will be in a stronger position to weather the storm ahead. 

Payment relief

  • Request additional extensions to pay (preliminary) taxes without penalty.
  • Benefit from any extensions for filing tax returns.
  • Improve cash position by benefitting from abolished/reduced penalties and interest for late payment and late filings.

Wage tax / social security

  • Consider potential wage tax consequences of reimbursements for employees for working from home, travel expenses while no longer traveling, etc.
  • Review the tax and social security consequences for employees that have changed their routines working cross-border.
  • Check whether R&D incentives still apply and the consequences if not. Employees may not be able to perform R&D activities if they are working remotely.

VAT

  • Review VAT/Customs impact on changed supply chain. Regular suppliers may no longer be able supply.
  • Reclaim VAT on unpaid invoices.
  • Check VAT due on any compensation received for damages.
  • Change to a more beneficial VAT filing period: more frequent in case of refunds; less frequent in case of payments.
  • Pay attention to thresholds for the distance selling regime if you sell fewer or more products abroad.

Corporate income tax

  • Monitor (temporary) reductions of corporate tax rates and alternatives to benefit from them.
  • Identify additional provisions to reduce the tax burden in 2020. For example, the provision for bad debts or a reorganization.
  • Review any reductions to the taxable profit that can be made by writing down receivables or other assets.
  • Prevent expiration of tax loss carry forwards. Use the facilities that provide a more beneficial use of tax losses.
  • Review the deductibility of additional interest expenses. For example, earnings stripping rules that limit the deduction of interest up to a certain % of EBITDA.
  • Review intercompany funding structures for possibilities to improve the tax position of the group. Consider that waiving debt and converting debt into equity may be taxable. Write-offs on receivable are not always be deductible.
  • Monitor foreign withholding taxes. For example, in the event of a tax loss, foreign withholding taxes on royalty income cannot be credited. Check alternatives for optimization.
  • Check tax impact on circulation of cash within the group especially to companies that require cash to counter crises.
  • Maximize benefit of R&D incentives that reduce tax liability and tax cash out. For example, innovation box regimes.

Transfer Pricing

  • Review sustainability of your 2020 transfer pricing model.
  • Review the existing intercompany agreements to consider whether these allow for economic adjustments between the parties in the event of business disruption.
  • Review the prior year documentation to assess the functional and risk profiles of related entities, and verifying if any of them are at risk.
  • Check the comparables used in the previous benchmark analysis.
  • Review your advanced pricing agreement (“APA). It may not cover transactions under extraordinary circumstances.
  • Evaluate and document the impact on transfer prices due to adjustments made to supply chains or employee locations and movements during the crisis.