The global impact of coronavirus aligned with the fact that different countries are at different stages in responding to the pandemic will mean a new way of doing business will be with us for many months (and probably longer). Therefore, globally active middle market companies now need to set their business continuity plans for at least the rest of 2020.
We have seen massive global disruption to the previous ways of doing business, with in many cases a simultaneous hard stop for both supply and demand within companies, and sometimes within entire sectors or industries.
Governments are now putting in place steps to support employment, stabilize business and support their economies more generally. Planning is essential, especially given that the change and uncertainty will continue. Therefore, knowing the company’s priorities will companies have a sense of direction.
However, it is essential to remain flexible and ensure that good communication is maintained with all key stakeholders
New laws and regulations will vary significantly between countries. However, the advantage of a global perspective is that it highlights trends and allows global companies to:
- Check and compare what is happening in countries around the world where they do business;
- Be aware of potential new measures that may be introduced; and
- Move quickly when opportunities arise.
The business continuity plan should therefore consider:
- Employment Support
- Cash and Liquidity – Loans and Other Funding
- Specific rules for SME’s
- VAT/GST and other tax deferrals
- Specific targeted support - Sector and Industry initiatives
- Property and real estate; and
- Country specific issues
As the economic effects of coronavirus take effect, governments have introduced a range of measures to support employment (wage subsidies, support for traineeships, direct payments to individuals and lower tax rates).
For example, the UK Government announced on 22nd March a job retention scheme (JRS) for all UK employers with a PAYE scheme. Employers can designate those employees who would otherwise have been laid off as being on leave of absence. These employees are kept on the payroll and not made redundant. The employer will be able to apply for a grant to reimburse up to 80 per cent of those employees’ regular 'wage costs' up to a cap of £2,500 per month.
Looking more broadly at globally mobile employees it is likely a range of further issues will overlay the salary cost issues (for example unplanned relocation costs, risks of double taxation and potentially changes to tax residency from sudden cessations of overseas assignments).
Cash and Liquidity - Loans and Other Funding
Cash flow is critical for all companies in the current environment and a range of programs from grants, loans, subsidies and financial support via the banking system are being introduced to support business especially SME’s.
In the US the CARES Act establishes the Paycheck Protection Program to allow small businesses, sole proprietors, independent contractors and other self-employed individuals, including gig economy workers loans through the Small Business Administration’s program that is intended to cover up to eight weeks of cash flow assistance.
Provided a business retains existing employees at or near current salary levels, the debt will be forgiven to the extent the proceeds are used in an eight-week period following loan origination for payroll costs, mortgage interest, rent and utility payments.
In the EU the European Commission has adopted a Temporary Framework that allows Member States to ensure that sufficient liquidity remains available to businesses after the COVID-19 outbreak.
Small and Medium Enterprises
SME’s play a critical role in economies, both as employers and as a strong part of their local business and social communities. Hence, governments have specifically directed funding measures to assist SME’s, for example via cash payments to SME employers or providing loan guarantees.
In Australia, the Government will guarantee a 50/50 partnership with banks and other lenders to provide more lending for SMEs. Loans of up to $250k for up to three years will be available to businesses with turnover under $50m with no repayments required for the first six months. The loans will be unsecured.
VAT/GST Tax deferrals
VAT and GST systems are now in place in over 160 countries and changes to VAT/GST systems are a very effective way to drive policy objectives. Given the ‘real time’ nature of VAT and the fact that it is paid based on transactions, if those transactions are interrupted for the reasons we are seeing, then businesses are going to be unable to meet their obligations to file and make payments in the normal course of events.
This has been recognised by many Tax Authorities in a series of recent announcements to help businesses by deferring payments or reducing VAT rates. For example, in India, GST returns for smaller companies (less than Rs 50 million) due in March, April and May can be filed in the last week of June 2020, with no interest, penalty or late fee to be charged. For larger companies the payment deferral remains available but at a lower interest rate than would normally apply.
More extensive delays to both tax filing and payment requirements have been announced by many governments.
For example, in Canada previously, the Government stated it would postpone income tax-payment deadlines, thereby providing tax deferrals to individuals and businesses to help meet liquidity needs. The Canadian Revenue Authority has now confirmed new tax-payment deadlines and, in some cases, new extended deadlines to file income tax returns. Tax returns filed by the new filing deadlines will not be subject to late-filing penalties. Interest will not accrue on any tax provided that it is paid by the new payment deadlines. More
Similarly, in Germany tax authorities will largely waive enforcement measures and late payment penalties until the end of 2020 if companies are directly affected by the coronavirus situation.
Specific targeted support
The travel, tourism and hospitality industries were in the first wave of sectors that were impacted by travel bans and then social distancing, so governments have been quick to direct resources to support the supply side of the industry given the almost complete shutdown of demand in many cases.
In Singapore the government has specifically targeted its industry support (for example a 75% offset is available for the first S$4,600 monthly wage local employees in airlines and airport support roles, plus hotels, travel agents and other tourist operators). This is backed up by other government funding packages designed to both support the industry and provide aid for its eventual rebound post the crisis.
In HK the government has introduced a profits tax exemption to qualifying shipping lessors and shipping mangers in future years. In addition, the government is proposing further tax concessions for carried interest issued by private equity funds operating in Hong Kong.
The current situation is showing the balance between the interests of financiers, property owners and tenants, overlaid with the variables of property usage and location (e.g. commercial or residential, regional or city location).
Given the inter-related nature of the property industry it is likely a range of measures will be required varying from rental relief for tenants, financial support for property owners and waivers of government rates, registration charges and utility costs. We anticipate more announcements in this sector as the situation evolves.
The complexity is clearly illustrated in the retail industry where the coronavirus impact has come on top of the significant market disruption that on-line competition was already causing.
Following the very rapid development of Covid-19 to become a global pandemic, the economic impact on China has been significant, extending from quarantine requirements for staff to postponed work resumption, and from reduced consumption in many sectors to massive logistics delays. The State Administration of Taxation in China and local governments have announced a series of measures to restore the normal operation of the economy and reduce the negative impact on enterprises doing business in China.
New tax regulations have been introduced to:
- Support the national economy;
- Provide social security relief; and
- Stabilise the local business by applying special regulations in Shanghai
Those companies that review the global impacts of the tax concessions and other economic measures that have been, and will be introduced, will be at a significant advantage over those which respond on a single country by country basis.
This will allow them to build an internal knowledge and skill base that can allow teams to ensure they are not missing opportunities or duplicating efforts plus also identifying new ways of doing business.
External advisors can then be used to provide the updated technical knowledge and industry experience, along with specialist skills where these are not available in house.
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