During the Coronavirus (COVID-19) crisis, business may slow down or even completely shut down, sales are down or next to zero, cost cutting programs have already started, and nobody knows exactly when the recovery will begin.
How can the Head of Tax contribute?
CASH, CASH, CASH
Firstly, look at the upcoming tax payments in April, May and June 2020, as they could be reduced, mainly because of the following two reasons:
Many Governments have issued specific decrees allowing to defer most of these payments (generally without application of late-payment interests); this is mainly in favour of small-medium sized companies but can apply also to large companies under certain circumstances (in particular, see USA, Canada, Germany, UK , France and Italy). Nothing is entirely free, though, and in some cases the benefit of the deferral is conditional upon a commitment by the companies not to distribute dividends or buy back shares (e.g. France).
Profit in Q1 has been affected by the COVID-19 economic impact and following Qs will likely be affected: tax prepayments of Corporate Income Tax can be reduced accordingly under various schemes.
Point of attention: All those measures affect your tax cash out in 2020, but not your tax line in the P&L.
Secondly, now is a good time to review all your refundable tax credits, as guidelines to accelerate the refund have been issued in some countries, e.g. France. Furthermore, illiquid tax credits/assets may be unlocked (e.g., in Italy through the conversion of certain DTAs into a tax credit available when baddebts are sold; in USA exceptional carry-back of tax losses has been allowed).
Thirdly, when cash becomes a priority, you may be asked to swap accounting ETR savings with lower cash tax savings.
Finally, dividend distributions from affiliates may be accelerated, to also benefit from current FX rates (e.g. Euro/USD). There is nothing particularly notable about this, but just be mindful that the application of reduced WHTs requires due fulfilment of certain requirements and, more importantly, a firm position to be taken with respect to cases which may have been put on hold because of uncertainties on the applicable regime in light of BEPS (Principal Purpose test etc). Ensure you are prepared!
WORK CLOSELY WITH HUMAN RESOURCE (HR) AND TREASURY DEPARTMENTS
HR is working hard on obtaining subsidies by governments with respect to labour costs. The Head of Tax should assist in finding ways and opportunities to defer payments of withholding taxes on salaries and/or social contribution charges. Such measures are also available to large size enterprises (USA and Italy), and may affect not only your cash out, but also your P&L (e.g., reduction in China of 50% social contributions for 3 months).
State guaranteed loan programs have been launched (amongst others, in Italy, Germany, Switzerland and The Netherlands). The Treasury Department should be looking into these: make sure you are involved and tax collateral impacts are duly evaluated.
BE PREPARED FOR SPECIAL REQUESTS FROM YOUR CFO OR CEO SUCH AS PURCHASING MASKS OR MAKING DONATIONS
These transactions may appear as ordinary business. However given the top managements involvement and the media exposure, the Head of Tax should be on top of them. In particular, many special rules have recently been approved to speed up customs procedures and/or provide VAT exemptions and special tax credits (among others, this is the case for Brazil, China, Ireland, Italy and Spain).
Gifts in support of COVID-19 related initiatives are increasing. Make sure you are up to date on the latest tax rules aimed at incentivizing these actions and in full control of tax buffers for deductible donations.
BE (INTERNATIONALLY) CONNECTED
Now more than ever (given the need to make decisions in very short time frames with limited visibility), it is important to learn from others’ experience, pool the different views and be on top of “market” trends. The ongoing COVID-19 crisis also raises interesting questions with respect to international principles (e.g., the impact of “stay at home” requirements on PE, residency, employees’ taxation) and transfer pricing (still ground for a routine stable profit of distributors under the TNMM in a crisis scenario?).
Tax Clubs, pooling Head of Tax’s representative, are a very useful instrument to take informed/quick decisions, and be a source of valuable information to your CEO/CFO.
NURTURE YOUR TEAM
Working remotely should not loosen ties within your team nor make them feel disconnected. Make sure contact and interactions are preserved, and that usual reactivity is kept high.
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These are difficult times to navigate, in which full strength and responsiveness are expected from the Head of Tax, more than ever.