Be aware of the effects to Corporate Tax Compliance due to COVID-19
COVID-19 pandemic has disrupted the international status quo. The primary concern is in the health and safety of the people, but already there have been severe reflections to the global economy and individual companies as well.
Published 20 March 2020 (updated 29 May 2020)
- How to Request a Payment Arrangement?
- The Prepayments of Corporate Income Tax
- Value Added Tax and Other Self-Assessed Taxes
- Corporate Tax Returns
- Late-Filing Penalty for Tax Returns
On 16 March 2020, the government, in cooperation with the president, declared a state of emergency in Finland due to the spreading of COVID-19. After the announcement, the Tax Administration gave the following guidance regarding easing of the terms of payment arrangements:
- The Tax Administration will ease the terms of payment arrangements due to the exceptional circumstances caused by the COVID-19 pandemic.
- If a company has financial difficulties to pay taxes due to the situation caused by COVID-19, it can apply for the eased payment arrangement with effect from 25 March 2020 by using My Tax or calling the Tax Administration service line.
- If a company has an active payment arrangement and financial difficulties caused by the coronavirus, it can make a new request for a payment arrangement in MyTax starting 25 March 2020. By making a new request, the company can get a new arrangement with eased terms, provided that the request meets the requirements for a payment arrangement.
- The eased terms for payment arrangements also apply to the extensions for payment granted for car tax and excise duties.
- Starting from 25 March, the taxes being processed with the eased payment arrangement will not be transferred to enforcement authorities or the company’s tax debt will not be published in the Tax Debt Register or in the protest list.
- The interim amended law regarding the interest rate for late payment of taxes entered into force on the 1st of May 2020, but shortly after the government gave yet another proposal regarding the interest rate.
- The law will stay in force for a fixed period ending in 31 August 2020.
- The interest rate would decrease from 7 percent to 3 percent for delayed taxes which are included in the eased payment arrangement, or for delayed payments specified in the laws regarding excise taxation or vehicle taxation. The earlier accepted interest rate was 4 percent.
- The interest rate for late payment is reduced for taxes due from 1 March 2020.
- Tax Administration will start to process the requests for payment arrangements only when the amending legislations enter into force.
- The changes to the granting of eased payment arrangements and their terms will be effective as have entered into force.
- The changes will apply to all payment arrangements, that have been applied to starting from 25 March 2020 and before the end of August 2020.
- The first installment of the eased payment arrangement will be due in three months after the arrangement has been granted.
- Tax Administration will automatically include new tax debts that have arisen after the new payment arrangement until 31 May 2020.
- Payment arrangements will give more time to pay corporate taxes and the Tax Administration will not engage in collections proceedings, if the payment arrangement is in force.
- However, a company can be granted a payment arrangement only, if:
- There are no due taxes that have been transferred to the enforcement authorities.
- All tax returns must be filed, and wages and salaries must be reported to the Incomes Register.
- Also, an earlier expired payment arrangement can prevent a new one to be granted to the taxpayer.
How to Request a Payment Arrangement?
- A company should not apply for an eased payment arrangement “just in case”, if there are no due taxes.
- The same terms and interest rate will be granted even if the request is done after the due date.
- If a company has taxes due from March or earlier, the payment arrangement should be requested before the end of this month.
- If there will be taxes due in April and the company is having financial difficulties, the payment arrangement should be requested during April.
- There will be 1-3 reminders sent before the overdue taxes are sent to the enforcement authorities for recovery.
- Request for a payment arrangement should primarily be done in MyTax, but it can be requested by calling the Tax Administration’s service number.
- It is not required to enclose a specification of the financial difficulties with the request.
- It only requires the request of the length of the payment arrangement and contact information for possible enquiries.
- The taxes included in the payment arrangement can be divided into no more than 21 instalments.
- The due date for the first instalment of the payment arrangement is 3 months from the day when the payment arrangement was approved.
- If the request is made before 31 May 2020, the Tax Administration will also add all taxes that fall due before that to the payment arrangement.
- Taxes included in a payment arrangement request that is being processed will not be sent to the enforcement authorities and the company’s tax debts will not be published in the tax debt register or the protest list.
- The Tax Administration will start to process all requests for a payment arrangement as soon as possible, after the amended legislation regarding the re-lending of VAT and the updated interest rate have entered into force.
- According to current information, the legislation will enter into force in June.
- It is estimated, that the processing of the payment arrangement requests would take approximately 1-2 weeks after the laws have been confirmed.
- Decisions on payment arrangements with eased terms should be expected at the earliest in the end of June.
- Due to the coronavirus situation, there is likely to be a large number of requests, which may result in longer processing times.
- The payment arrangements accepted in June will have their first installments due in September and then continuing monthly.
- The payment arrangement enters into force as soon as the Tax Administration has accepted the request.
- If the request for an arrangement was made in MyTax, the response to the request can be seen as soon as it has been processed.
- If the request for an arrangement was made over the phone, the response will be sent by post within a week.
- If the request for payment arrangement is accepted, it will affect any tax refunds the company may receive from the day of acceptance until the end of the year.
- The Tax Administration will not use tax refunds to pay taxes that are in the payment arrangement.
- If the company received tax refunds in April, May or June and they have already been used to pay the company’s taxes, it can ask for the Tax Administration to cancel the use of the refunds.
- The company will then receive any refunds that have been used between 25 March and 15 June.
- The exact date for June can be changed as the legislation enters into force.
- In MyTax’s section for payment arrangement request, the company can ask for the cancellation of use of refunds.
- If the arrangement is not granted to a company, it will be notified of it by letter or by phone.
- A company will receive a payment plan and payment instructions for the taxes in the arrangement by post. They will also be available in MyTax.
- The payment arrangement can lapse if, for example, the company does not follow the schedule of the payment plan. However, the company is always notified of that separately.
- After the arrangement has lapsed, the Tax Administration sends the unpaid taxes to the enforcement authorities for recovery.
- In addition, the tax debts may be published in the tax debt register and the public protest list.
Many companies may face severe cash-flow crises and negative financial development in the foreseeable future. Fortunately, the government and Tax Administration have taken action, but how else should a company be prepared to the tax specific challenges brought to us by COVID-19 pandemic? What kinds of options do the established tax laws and procedures provide, and what are the possible consequences due to financial difficulties or payment delays?
The Prepayments of Corporate Income Tax
The prepayment amount is based on a company’s estimated taxable profits. If the actual income or expenses differ from the original estimate, a company should request a change to the payments. The changes can be made under exceptional circumstances based on a company’s request without interim financial statements or other written specifications. Changes can be requested in the Tax Administrations MyTax service.
What if there is a delay in the prepayments?
- Payments that happen after the due date must be added the late-payment interest to the sum total.
- The interest period starts on the day after the due date and ends on payment (calculations of late-payment interest include both these dates).
- Late-payment interest’s rate is officially defined for every year. For 2020, the rate is 7%.
- The collection of interest rates for the late payment can be waived under special grounds. The request must be done in MyTax.
- Tax Administration does not send a separate reminder letter for overdue prepayments. Instead, there is a reminder in the MyTax summary.
- If the Tax Administration were to transfer unpaid taxes to the enforcement office for recovery, one will receive a letter to notify of it and it can be seen in MyTax, too.
- A company can still avoid having the enforcement office recover the amount, if its paid by the date indicated on the letter.
- Taxes that have been transferred to the enforcement authorities must be paid to them, following the payment instructions of the enforcement office.
Value Added Tax and Other Self-Assessed Taxes (e.g. employer’s contributions like tax withheld and social security contributions)
Tax Administration cannot grant more time for filing VAT returns or other tax returns for self-assessed taxes. It is to be noted that employer’s contributions, such as the withholding on wages, are also treated as self-assessed taxes. Companies can request that late-filing penalty is removed. If there is a justified reason for filing late, such as illness, the taxpayer may not have to pay a late-filing penalty. In these cases, the company should contact the Tax Administration on the return’s due date (general due date on the 12th of the month) or immediately after. The cancellation of late-filing penalty can be requested by calling the Tax Administration’s telephone service or by sending a message in MyTax.
Implications regarding late-filing or delays in payments:
- The general due date for self-assessed taxes is the 12th of each month. If the 12th falls on a Saturday, Sunday or a public holiday, the due date is extended to the next business day.
- The due date for VAT returns is the 12th of the second month following the tax period.
- If a self-assessed tax is paid after its due date, the taxpayer must pay late-payment interest in addition to the tax itself. For 2020, the rate is 7% (annual interest).
- Due date for employer’s contributions is by the 12th of the month that comes after the payroll month.
- Unpaid taxes accrue interest, starting on the due date and continuing until the day they are paid.
- The taxpayer is subject to late filing charges, if VAT returns or other tax returns for self-assessed taxes are filed after the regulated due date.
- Late filing charges consist of two parts: one part is based on the number of days, and the other part is dependent on the amount of tax due.
- If a return is submitted within 45 days after the due date, late filing charge of EUR 3 per day will be imposed (a maximum of €135).
- If the return is submitted after 45 days from the filing deadline, the late filing charge will be EUR 135 + 2% of the amount of tax due. However, the late filing penalty will be a maximum of €15.135 per return (fee for the first 45 days included).
- If a return has been submitted on time, and a corrective return is submitted after the due date, but within 45 days from the filing deadline of the original return, no late filing charges will be imposed.
- If a corrective return is submitted after 45 days has elapsed from the filing deadline of the original return, and the original return has been submitted on time, the late filing charge will be EUR 2% of the tax amount due. The late filing charge will be a maximum of €15.000 per return.
The government gave a proposal to the Parliament on the re-lending of value-added tax to businesses in early 2020:
- VAT due and paid during January - March 2020 can be reimbursed to businesses.
- Only the original VAT amount will be returned, possible paid late-payment interest will not be returned.
- If the company’s VAT period is a year, it can request 25% of the VAT for 2019 to be returned.
- The interest rate is proposed to be set at 3 % on the VAT amount.
- The late-payment interest is calculated from the original due date of the tax.
- The interest is automatically included in the payment instalments of the arrangement.
- In practice, the company requests a payment arrangement and will pay the returned VAT back to the Tax Administration later as part of the payment arrangement.
- Companies can request payment arrangements starting 26 May and the easiest way to request is in MyTax.
- If a company has already requested a payment arrangement with eased terms, and now wishes to also request paid-in VAT to be returned to the company, it must make a new payment arrangement request by 15 June 2020.
- This will replace the previous request.
Corporate Tax Returns
Many companies are filing their annual corporate income tax returns during the spring. On April 9th, Tax Administration informed that they will extend the filing deadline for corporate tax returns:
- Filing deadline for corporate tax returns is extended by one month.
- The tax return can now be filed within five months from the end of the accounting period.
- Normally, the tax return must be filed within four months.
- The extra month does not need to be separately requested, and no late-filing penalties are imposed for tax returns filed during the month.
- The decision applies to corporate entities and benefits under joint administration whose accounting period ended between December 2019 and February 2020.
At this point it is also good to remember that there is a possibility to request more time for filing, if the above-mentioned extra month or the normal four-month deadline, is impossible to achieve for the tax return filing. A taxpayer can get more time for filing if there is a justified reason, such as illness, that prevents the filing of the tax return by its original deadline. The request for more time can be done in MyTax or with a paper form. The request must include the reasons for the extra time. Usually, the Tax Administration can grant approximately 2 weeks of extra time for the filing. It should be noted that the application must arrive at the Tax Administration by the tax return’s original filing deadline.
If an entity files a tax return late, but before the taxation has ended, the taxpayer is subject to a late-filing penalty. The late-filing penalty is 100 euros. However, if there is a justified reason, such as illness, it can be requested that the late-filing penalty will not be paid. In a case like this, the Tax Administration should be contacted as soon as possible via MyTax or telephone. If an entity has not filed corporate income tax return before the taxation has ended, the consequence is punitive tax increase.
The COVID-19 pandemic creates uncertainty and carries a lot of obstacles for individual companies. We will be monitoring the rapidly evolving situation carefully and we attempt to inform on the possible changes promptly. A general guideline for challenging situations regarding tax related matters is to communicate with the Tax Administration actively and in good time.
Late-Filing Penalty for Tax Returns
As mentioned above, if a company files its tax return late due to a justified special reason, such as illness, it may not have to pay a late-filing penalty. However, there should not be a medical certificate enclosed with the tax return, only a free-form written account is enough.
The Accounting Board granted a specific exemption regarding a deferral of the deadline for preparing of the financial statements of entities defined separately by the Accounting Act. It is to be highlighted that this does not cover all accountable entities.
In order to ease the financial difficulties caused by the coronavirus, the Tax Administration has made temporary changes to its decision on fringe benefits.
The new decision will be in force from 24 March 2020 to 31 August 2020.
During this time, employees are allowed to use their meal benefits to pay for the delivery costs of their meals in addition to the meals themselves. There have been no changes to the amounts or other terms of meal benefits. The employer may offer a maximum of €10.70 in meal benefit for each working day.
We at Deloitte will be pleased to assist if you have any concerns regarding tax related implications due to the COVID-19 pandemic. We will gladly answer any questions regarding the above mentioned tax compliance matters, so please do not hesitate to contact us.
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