Policy decision on corona crisis emergency measures updated | Deloitte Nederland

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Policy decision on corona crisis emergency measures updated

An updated version of the policy decision on tax allowances in response to the corona crisis was published recently. It provides for a number of new approvals and extends existing ones.

22 June 2020

Introduction

An updated version of the Corona Crisis (Emergency Measures) Decree was published on 18 June 2020. It includes some new approvals, such as a tax exemption for the allowance for fixed costs of SMEs and a postponement of the requirement to publish financial information for PBOs, while other allowances are extended until 1 October 2020.

Corporate income tax

Corona reserve

Entrepreneurs are permitted to form a reserve in their 2019 corporate income tax return for losses they expect to incur in the financial year 2020, provided these losses are the result of the corona crisis. For split financial years, a reserve may be formed in the last financial year ending in the period of 1 January 2019 – 31 March 2020. If a return has already been filed, a supplement to the return may be filed.

The loss to be taken into account may not exceed the total loss expected for 2020. Likewise, the addition to the corona reserve may not exceed the profit realised in 2019 before that reserve was formed. The reserve will subsequently be included in the profit again in the 2020 financial year. Corona-related losses can thus be recognised more rapidly than would be the case under the regular loss setoff scheme.


Time limits of tax facilities extended

The decision provides for a relaxation of the time limits within which certain legal acts should be performed to qualify for retroactive application of the tax facilities for tax-neutral conversion, transfer of a business under Article 14c Dutch CITA (geruisloze terugkeer), company mergers, legal mergers, and demergers. The approval means that these periods will be extended by three months if they would expire during the period from 1 March 2020 through 30 September 2020. 

Income tax

Relaxation of hours criterion

Provided they meet the hour criterion, entrepreneurs for income tax purposes can claim the entrepreneur’s allowance when determining their taxable profit. Under this criterion, entrepreneurs must have spent at least 1,225 hours in the calendar year on work for one or more of the businesses they carry on. To prevent that the right to an allowance is lost, from 1 March 2020 - 30 September 2020 the Tax Administration will assume entrepreneurs to have spent at least 24 hours a week on work for their business(es), even if this is not actually the case. Entrepreneurs engaged in seasonal work and who would normally have a peak in the number of hours spent may, for the year 2020, refer to the hours they spent in the period from 1 March 2019 - 30 September 2019.


Tax exemption for TOGS & Allowance for fixed costs of SMEs

Companies in certain sectors directly affected by the government measures to combat the spread of the coronavirus are entitled to a one-off payment of EUR 4,000 (TOGS). In addition, there is an allowance for fixed costs of SMEs of up to EUR 50,000 (depending on the degree of loss of turnover) over a period of four months. Though these allowances are, in principle, part of the business profit, the State Secretary has approved that they will be exempt from taxation.

Payroll taxes

Customary wage substantial interest holders

Entrepreneurs performing work for a company in which they or their partners for tax purposes hold a substantial interest, must take into account a customary wage for the purposes of payroll taxes. The State Secretary approves a reduction in the customary wage for 2020 if entrepreneurs are faced with a drop in turnover as a result of the corona crisis. The following formula applies for this:

Customary wage 2020 = A x B/C

A = customary wage for 2019
B = the turnover for the first four calendar months of 2020 (exclusive of VAT)
C = the turnover for the first four calendar months of 2019 (exclusive of VAT)

This is subject to the condition that the current account debt or the dividend does not increase due to the lower customary wage. The approval does not apply if the turnover for 2019 or 2020 is affected by other extraordinary causes, such as a merger or demerger. The approval is independent of the statutory rights to demonstrate a lower customary wage.


Work-related expenses scheme

Since 1 January 2020, the so-called discretionary margin under the work-related expenses scheme for wage tax purposes is 1.7% of the wage bill for tax purposes - capped at EUR 400,000 -, and 1.2% over the excess. In anticipation of a legislative amendment, it has now been approved that the former percentage will be increased to 3% for the year 2020. It allows employers greater freedom to grant their employees allowances and benefits in kind without an 80% final levy being due. The discretionary margin over the first part of the wage bill for tax purposes of EUR 400,000 will thus be increased to EUR 12,000 - up from EUR 6,800. The percentage of 1.2% for the part of the wage bill for tax purposes exceeding EUR 400,000 will not change.


Fixed allowances

Employers may grant a flat-rate travel allowance to employees who have a fixed and regular travel pattern. If these employees do not travel to their usual place of work as a result of corona crisis measures, employers should adjust fixed travel allowances or include them in the wages. To address this undesirable effect, the State Secretary now approves that changes in employees’ travel patterns have no consequences for fixed travel allowances as long as the decision applies. Employers may also apply this approval for fixed travel allowances adjusted subsequently on the basis of actual costs. This means that, for this period, employers may continue to rely on the assumed facts on which the payment of travel allowances is based. The version of the policy decision published on 18 June 2020 shows that this also applies to other fixed expense allowances, with the exception of the 30% facility. However, this should concern fixed allowances to which the employee was unconditionally entitled no later than 12 March 2020.


Administrative obligations

Due to the corona crisis measures, employers are often unable to comply with certain administrative obligations. The State Secretary therefore approves the leniency shown by the Tax Administration in situations where employers or employees are reasonably unable to comply with statutory administrative obligations - or to do so on time - as long as this decision applies. This is subject to the condition that they rectify such non-compliance as soon as possible. As an example, the State Secretary referred to the obligation to identify new employees. In the current circumstances, it is not always possible to establish an employee’s identity based on an original ID on time as required by law. In such situations, the anonymous persons rate does not have to be applied, provided employers establish their employees’ identity as required by law whenever they are reasonably able to do so.


Exemption from German net benefits

While the Netherlands has chosen to compensate employers for their wage costs to enable them to continue paying their employees’ salaries, Germany opted for paying a social security benefit to employees. For Dutch residents who normally work in Germany and receive such a benefit, application of the tax treaty may result in the Netherlands having the power to tax these benefits. This is the case if these benefits (possibly in combination with certain other German benefits) amount to EUR 15,000 or less in a calendar year. In the normal situation, the employment income of these persons would be taxed in Germany. Moreover, the German benefits are based on net income, which means that Dutch taxation would produce an undesirable loss of income. The State Secretary therefore approves, subject to certain conditions, that the "Kurzarbeitergeld", "Insolvenzgeld" and "Arbeitslosengeld" benefits received by Dutch residents in the period from 11 March 2020 up to and including 31 December 2020 will be tax-exempt.

VAT

VAT consequences of hiring in and supplying staff

The combat against COVID-19 has forced healthcare institutions and healthcare providers to mutually interchange an extraordinary number of healthcare staff. Hiring in healthcare staff may lead to VAT not (or not fully) being deducted if VAT must be charged. The State Secretary for Finance has introduced a mitigating measure in which he announces that supplying healthcare staff continues to be VAT exempted, subject to three conditions:

  1. the healthcare staff must be hired in by healthcare institutions (e.g., hospitals, nursing homes, elderly care centres, or mental institutions) that apply the medical exemption;
  2. the supplier must state on its invoices that this approval is being used and its administrative records must include the details involved;
  3. if a compensation is requested for the supply of staff, this must be restricted to healthcare staff members’ gross salary costs, possibly increased by an administrative fee - capped at 5%. The supplier is not permitted to seek or make a profit from the supply.


The supplier’s identity is irrelevant and the measure will not affect this supplier’s deduction of input tax. The measure has retroactive effect to 16 March 2020 and applies until 16 June 2020.


VAT consequences of providing medical supplies and equipment free of charge

Healthcare institutions, healthcare facilities and general practitioners currently receive many medical supplies and equipment free of charge (provided for no consideration - e.g., test kits, protective equipment, thermometers, disinfectants, respiratory equipment). Free supplies would usually trigger a limitation of deduction of input tax with the providing party, or VAT on the items supplied free of charge. The State Secretary for Finance has announced a mitigating measure, according to which no VAT needs to be charged on the free supplies of medical devices and equipment. In addition, these free supplies do not affect the right of deduction. However, four conditions must be met:

  1. the approval solely applies to goods listed in the Dutch-language ‘Bijlage Gepubliceerde lijst van de Wereld Douaneorganisatie; indelingen van medische voorzieningen in verband met uitbraak Covid-19’;
  2. suppliers will include the cost of the goods in their general expenses;
  3. the right to deduct VAT for these general expenses is determined based on entrepreneurs’ total revenues, excluding the free provision of the goods;
  4. suppliers must state on their invoices that this approval is being used and they must include the details involved in their administrative records. Thus, it is required to issue an invoice for the free goods.


Reduced VAT rate for offering online gym sessions

With the gyms being locked down, the entrepreneurs involved currently often offer adapted online gym sessions. As these are special circumstances, the State Secretary for Finance approves that the reduced 9% VAT rate applicable to providing sports facilities for the active exercise of sports, likewise applies to gym sessions offered online. This approval can be applied retroactively to 16 March 2020 and applies until the compulsory lockdown is lifted.


Supply of mouth masks

In an effort to limit the spread of the coronavirus, wearing mouth masks in public transport will be mandatory, effective from 1 June 2020. On the back of this, the State Secretary approves that the supply of mouth masks will not be subject to VAT during the period from 25 May 2020 through 1 September 2020. The approval does not affect the supplier's right to deduct input tax.

Energy tax and Surcharge for Sustainable Energy

Energy suppliers are permitted to postpone the energy tax and the Surcharge for Sustainable Energy (Opslag voor Duurzame Energie – “ODE”) due for the months of April, May and June 2020 until October 2020. The same applies to the related VAT due. The decision distinguishes between the following situations:

  1. Energy supplies without advance payment or invoice;
  2. Energy supplies without advance payment but with invoice;
  3. Energy supplies with both advance payment and final invoice per calendar month;
  4. Energy consumption without supply, advance payment or invoice.


This is subject to the condition that the taxes due for those months of April, May and June 2020 will still be charged in October 2020 at the latest. In all cases, the energy tax, the ODE, and the VAT calculated on this will still be due by 1 November 2020 at the latest. The decision also contains a number of administrative conditions.

Taxation of passenger cars and motorcycles

The crisis has forced the National Vehicle and Driving Licence Registration Authority (“RDW”) to give priority to crucial inspections. Other inspections are postponed as much as possible. To prevent taxpayers from being disadvantaged by this, a number of approvals have been included regarding the exemption for short-term use of a car with a foreign license plate by Dutch residents, and the measure for taxis to be converted. The validity of inspection reports prepared right before or during the period of limited RDW services (as from 16 March 2020) will be extended, too.

Postponement of publication requirement for PBOs

Within six months of the end of the financial year, public benefit organisations are required to publish certain financial information on the Internet. If an organisation has difficulty meeting this obligation due to the corona crisis, the publication date may be postponed for a maximum of four months. If the board avails itself of this opportunity, the decision to that effect must be published on the website, stating the reasons.

Postponement of payment

Companies in payment difficulties can send the Tax Administration a written request for an extraordinary postponement of payment. The scheme covers a large number of taxes: income tax, corporate income tax, VAT, wage tax, payroll tax and national insurance contributions, tax on games of chance, insurance tax, landlord levy, eco-tax, excise duty, consumption tax of non-alcoholic beverages, and similar taxes in the Dutch Caribbean. For the time being, the relaxed postponement policy applies until 1 October 2020.

Requests for short-term postponement can be submitted both digitally and in writing. Information on the Tax Administration’s website shows that postponement of payment for all taxes referred to above only requires a single request. This is subject to tax returns being filed on time and correctly, while requests for postponement can only be filed after an assessment (or additional assessment) has been received. As soon as the Tax Administration has received the request for postponement, effective from the date of the request for postponement they will halt their collection for a period of three months. Any new assessments arising during this period do not require a renewed request for postponement. Also, during the postponement period the Tax Administration will technically not set off any refunds against outstanding tax debts for which postponement of payment has been granted.

Subject to additional conditions, such as the need for postponement and compliance with the obligation to file tax returns, longer postponement is possible. In that case additional information must be provided. If the outstanding tax debt is less than EUR 20,000, it is enough for entrepreneurs to send a letter explaining how the corona crisis has affected them. Any larger tax debts require the preparation of a liquidity forecast and providing a statement from a third party expert. This statement must show that the financial problems were mainly caused by the corona virus outbreak and that the appended liquidity forecast is plausible. However, an assurance statement is not required. On top of that, entrepreneurs must declare that no bonuses will be paid to management, no dividend will be paid to shareholders, and that the company will not repurchase any shares during the period from the moment the request for postponement is submitted until the date of the meeting in 2021 in which the annual accounts are adopted.

Basically, the Tax Administration considers a request for extraordinary postponement of payment to be a timely notification of inability to pay for periods starting from February 2020. Finally, the State Secretary states that a request for postponement under this policy decision does not preclude the issuance of a “clean” payment history report.

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