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

The global outbreak of COVID-19 is significantly affecting businesses and their employees, as well as the wider domestic and global economies. To help tax professionals understand the tax impact, ITR is offering a digestible range of articles.

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.

Global and regional

National and corporate tax matters

Indirect tax

Transfer pricing

China sets the precedent

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.

UK trails behind the rest of the EU

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.

Singapore tackles coronavirus

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.

US accepts there is a problem

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.

Stay up to date

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

Global and regional


National

Australia

Brazil

Chile

China

Indonesia

Italy

India

Malta

Mexico

New Zealand

Norway

Portugal

Saudi Arabia

Singapore

Switzerland

Thailand

UK

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