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. Final effects on the economy can be assessed only in the future but even now companies have had to adapt their business and everyday functions to the new realities. In this article we aim to demonstrate the effects of COVID-19 to corporate tax compliance matters and the available measures to tackle the possible issues.
UPDATED 25 January 2021 | Published 20 March 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
There were some measures introduced relating to taxation to ease the challenging situation many companies have faced in 2020. The most significant measures this far included the easing of the terms of payment arrangements, the decrease of the interest rate for delayed taxes which are included in the eased payment arrangement and the re-lending of value-added tax to businesses paid in early 2020. The changes were implemented by interim legislation measures which were in force until 31 August 2020. In practice this means, that currently the Tax Administration cannot grant payment arrangements with eased terms or decreased interest rate for delayed taxes anymore.
However, a company can still apply for a payment arrangement to pay taxes with regular terms, if it has temporary financial difficulties.
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.
- Company can request a payment arrangement, if
-There are no due taxes that have been transferred to the enforcement authorities.
-All taxes were paid that were included in a previous payment arrangement with the Tax Administration.
-All tax returns must be filed, and wages and salaries must be reported to the Incomes Register.
-Multiple previous and consecutive payment arrangements can affect the outcome of the new request.
- The same terms and interest rate will be granted even if the request is done after the due date.
-There will be 1-3 reminders sent before the overdue taxes are sent to the enforcement authorities for recovery.
-The rate of late-payment interest is 7% between 1.1.-30.6.2021.
- 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, the first due date and contact information for possible enquiries.
-The taxes included in the payment arrangement can be divided into no more than 24 instalments.
-The company can choose the first due date for the arrangement, however, the due date must be a banking day within 30 days from submitting the request.
-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 length of the payment plan or the size of the instalments cannot be changed afterwards.
- 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 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 or there are other taxes left unpaid while the payment arrangement is in force. 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. Between 1.1.-30.6.2021, 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. As mentioned, between 1.1.-30.6.2021, the rate is 7%.
- 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.
Corporate Tax Returns
At this point it is also good to remember that there is a possibility to request more time for filing annual corporate income tax returns, the 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.
Tax Assessment of Financial Aid and Subsidies
Article 4 of the act on the taxation of business income states that the financial aid or subsidies paid to cover the expenses of business operations are taxable income for the recipient. Public sector operators have helped companies in the coronavirus situation with financial aid and subsidies. How does this affect the tax assessment of the companies?
The companies must record the received amount in their accounting. The chosen accounting principles affect how the aid or subsidy is taxed. Article 19 of the act on the taxation of business income states that the received amount is to be treated as profit for the tax year it was received as money, receivables or other benefits of monetary value. Any general government aid or subsidies received by companies are usually periodized according to the date when the aid decision was made. If the company receives special corona aid for increased expenses, the aid is periodized according to the dates when the new expenses became apparent.
Article 27 of the act on the taxation of business income provides a second option for the periodization of income: to record the aid or subsidy as income for the tax year during which it was paid.
The payor reports the aid or subsidy to the Tax Administration on the annual information return on public support for business operations. These payments are not reported to the Incomes Register and no tax is withheld on them.
New legislation regarding an additional tax deduction for research and development investments during tax years 2021-2025
New legislation was introduced in the budget estimation for year 2021 by the Ministry of Finance, which purpose is to promote immaterial investments by companies by allowing an additional tax deduction. The proposal was accepted 17 December 2020 and the law entered into force in the beginning of 2021. The additional tax deduction is available for all companies and agriculturalists, which engage in research and development collaborations with certain specified research organizations. The tax deduction on the taxpayer’s business or agricultural income covers 50% of the company’s subcontract invoices related to research and development investments. The maximum amount of the additional tax deduction is €500,000 and the minimum amount is €5,000.
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 until further notice.
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 €10.90 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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