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PrimeGlobal member firm ABAB Accountants and Consultants explores the fiscal consequences of the Coronavirus crisis. 

The corona pandemic (COVID-19) affects people around the globe. The economy is not being spared. Needed products are becoming scarcer and costs of raw materials, like oil or metal, undergo great unexpected fluctuations. Other costs, such as for transport services, become more expensive. Employees who are usually based at your offices, now work from home. In order to somewhat mitigate the financial damage suffered by your company, the Dutch cabinet has announced a number of measures. Besides the measures taken by the cabinet, you can also arrange and monitor affairs yourself. 

Provisional corporate income tax assessments and income tax assessments can be reduced

The profit expectations of your company can decline due to COVID-19. You may combat liquidity disadvantages by submitting a request to lower the levied provisional corporate income tax and/or income tax assessments. In this case, you will pay less taxes with immediate effect. 

Paid corporate income tax can be reclaimed quicker

You can apply for provisional loss settlement. This is possible subject to the condition that you must demonstrate that your company has suffered losses after financial year 2020. Part (80%) of the (estimated) loss will be settled with the assessment for definite profits in 2019. As a result, you will be able to reclaim part of your excess corporate income tax quicker.

Suspension of payment option for due taxes

If your company demonstrably experiences liquidity issues due to the impact of COVID-19, you can request the Dutch Tax and Customs Administration for suspension of payments. The Dutch Tax and Customs Administration can grant you suspension of payments of the due income taxes, payroll taxes, corporate income taxes, and turnover taxes. 

No default fines will be levied in the coming period

The Dutch Tax and Customs Administration will not levy, or actually reverse, a default interest for the failure to pay taxes in the coming period.

What can you do yourself?

Make sure that you are well aware of all fiscal consequences of the corona crisis for your company. Do not forget to identify the potential consequences in the field of VAT, transfer pricing, and global mobility for your company. 

VAT consequences

Any agreements concluded previously may be cancelled and/or contracts may be dissolved due to the outbreak of COVID-19. This can also happen if the work has not been performed yet, has already been performed, or is currently being performed. Examples are events that are cancelled as a result of COVID-19.

Contracts may stipulate that amending or terminating the agreement will lead to payment of a fee to the other party. As a rule, you will not charge VAT on paid compensation. However, this may actually be the case, for example if the payment is a termination fee, rather than a form of compensation. You must also study the VAT consequences of a cancellation in case of paid advances.
Any amounts that have already been paid will be refunded if transactions are cancelled. You may need to issue correction invoices to your purchaser. This also has consequences for the VAT you have already paid to the Dutch Tax and Customs Administration. You can reclaim this VAT subject to certain conditions. 

Cancelling staff events can also have a positive impact on VAT. For example, if you have already incurred costs for your staff before an event is cancelled. Examples are purchasing food and drinks for your staff. The limitation of the deduction of input tax for staff costs will possibly no longer apply in this case.

Transfer pricing consequences

Group entities that carry out ‘routine activities’ in the value chain usually report relatively stable profits. This profit is in line with the roles performed, the risks faced, and the assets used by the entity. The excess profit accrues to the group entity performing an entrepreneurial role and facing significant risks. 

A substantial decrease in productivity as a result of COVID-19 can result in losses. This also applies to group entities performing routine roles. You must also analyse to which group entity these losses must be allocated. The manner of allocation depends on the agreed contractual conditions and the implementation of the transfer pricing policy between group entities within the multi-national group.

We recommend analysing and documenting in writing what the impact of the corona pandemic on the profit distribution within the multi-national group will be. Transfer pricing corrections may be required to come to profit allocation in line with transfer pricing regulations. This avoids discussions with the Dutch Tax and Customs Administration and local tax authorities about this topic as much as possible.

Finally, cash flow management can lead to an increase in group financing. In this respect, we want to point out that these group financing activities must be based on conditions set out in writing that are in line with transfer pricing regulations. 

Global mobility

An example. Your company is established in the Netherlands and you employ workers living in Belgium, for example. These employees work from home in Belgium due to the outbreak of COVID-19. You must be aware of the fact that this work from home has an impact on the taxes levied on the wages of these employees. The country in which your employee lives has the right to levy taxes on part of the wages. 

Subsequently, make sure to determine whether your employee is covered by social insurance in his country of residence because of the fact that he is working from home. Employees who continuously alternate between various countries within the European Economic Area (EEA) are insured in only one member state. This is the country in which they live if they perform at least a substantial part (25%) of their working hours here. A 12-month period is the reference framework in this respect.

Are the wages of your employees already subject to salary split? Make sure to monitor whether the salary split percentage still corresponds to the actual situation in a timely fashion. This prevents potential large (sudden and unexpected) corrections on the wages of the employee as much as possible.

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ABAB Accountants and Consultants

ABAB is a full-service accounting, tax advisory and consultancy firm. The firm was established in 1924 and, today, has over 700 staff members in 15 offices throughout the southern region of the Netherlands. ABAB’s operations are unique due to our wide range of services and our client-service formulas. We are committed to providing the service most suitable to all our clients, whether they are small or large, national or international-based companies. Our clients are primarily unlisted companies, institutes, organisations in the non-profit sector and high net worth individuals.

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