20. Apr 2020 at 6:30 | Renáta Bláhová
The current COVID-19 situation affects companies and businesses worldwide. In the night of April 9, the EU finance ministers definitely approved a generous €500 bn package, including €100 bn aimed at the introduction of the short-time work scheme (“Kurzarbeit”) in selected EU states. This is good news. More details on the EU package can be found at this official EU website.
At the time of the pandemic outbreak, parliamentary elections took place in Slovakia. Our new government, the members of which stand for a healthy and corruption-free business environment, was created on March 21. As early as on April 2, it managed to approve the First Aid Package, focused mainly on SMEs. Further packages will contain also measures to help larger companies, including the introduction of Kurzarbeit to the Slovak law and the use of the special EU aid above. All the measures approved in Slovakia until now are referred to as “LEX CORONA” and are made public on a step-by-step basis as aid packages.
A summary of legislative conditions approved or proposed as at April 15, 2020 can be found below. Conditions which have not been officially approved yet are italicised in the text below.
1. Financial subsidies aimed at maintaining jobs
There are two main alternatives available to employers as of today (A and B), the third one is in preparation, expected to be finalised in the next weeks.
Financial contribution to settle labour costs of closed operations
The project falls under the First Aid Measures to support employment and maintain jobs during the extraordinary situation.
This contribution enables employers who had to close their operations mandatorily to receive a refund of 80 percent of the average earnings of an employee, max. €1,100 per employee.
Due to the EU state aid rules, the total aid amount may not exceed €800,000 per applicant for the whole project duration.
Support of employers with decreased sales
The condition of a decrease in sales revenues by a minimum of 20 percent is applicable. The sales revenues are to be compared to the previous periods.
The contribution differs depending on the sales decrease (decrease by 20 percent: €180, 40 percent: €300, 60 percent: €420, 80 percent: €540).
Support of employers through the new Kurzarbeit scheme
In order to introduce Kurzarbeit in Slovakia, the legislative background has to be prepared first. Kurzarbeit is a measure under which the state takes over the employer costs of salaries in the expected amount of 60 percent (20 percent is expected to be born by employee and 20 percent by the employer). Both small and large employers should be entitled to use of the scheme. If approved, it will be available as an alternative to A or B above.
2. Liquidity support: Extended tax return filings and tax payments
Income tax returns with filing deadlines from March 12, 2020 until the end of the pandemic are being extended and the new “ordinary” filing deadline is uniform: the end of the calendar month following the end of the pandemic.
To prevent the negative retroactivity in the case of overpayments, this provision should be specified in more detail, stating that if the tax return is filed any time during the pandemic, the deadline will automatically originate at the end of such a month. The tax will be due within the extended deadline, too. The tax administrator is obliged to return the tax overpayment within 40 days of this deadline. Where amended tax returns lead to the reduction of overpayments at a later point in time, stricter sanctions are proposed.
The filing deadlines for the report and the annual reconciliation for an employee issued by the employer are being extended, too – until the lapse of the second month after the end of the pandemic. The tax will be due within this deadline, too, or the employer will return the tax overpayment within the same period.
Refund of corporate income tax overpayment
As stated above, corporate and personal income tax (of entrepreneurs) overpayments should be refunded within 40 days after the end of the month in which the tax return filing deadline lapses. This approach has been confirmed both by the Finance Ministry and the Finance Directorate for the tax returns already filed until the end of March. A similar legal regulation is expected for the remaining period during the pandemic.
Suspension of income tax advances
This measure has been published within the second aid package and should have been provided automatically during the pandemic based on a declaration of honour if the sales fall by more than 40 percent. This aid form has not been approved and made to law yet. However, it will be included in the third aid package. The stricter condition of sales decrease by over 40 percent should be applied through submission of a declaration of honour.
In any case, it is also possible to apply for adjustment of tax advances payable and request the change of the due amounts (also the option to stipulate €0). These requests will be handled individually, depending on the reasoning provided. According to our experience, the tax administrator applies a forthcoming approach. There is no filing fee for the request.
3. Liquidity support: Deferral of social insurance payments
There is an option to defer the social and health insurance contributions for employers and self-employed persons for the period 3/2020 until July 31, 2020. The government plans to extend the period by further months through a regulation.
4. Liquidity support: Loans and guarantees
Companies may be provided guarantees for bank loans by the state or interest on such loans may be settled by the state as a form of aid.
Deferral of instalments is to be requested by debtors, too (max. 9 months bank, 3 months other creditors). The deferral of instalments under this measure will not be classified as payment default (no register entry).
5. Impacts of COVID-19 on the financial statements
If production is interrupted or operation suspended, it is advisable that the company reconsider its current depreciation plan. Even though the Act on Accounting does not enable the suspension of accounting depreciation if the production is interrupted, there is a possibility to reconsider the depreciation plan and to adjust the depreciation rates or the remaining depreciation period of non-current assets. Information on these changes must be included in the Notes to the financial statements.
When preparing the financial statements, the company should follow the going concern principle. Companies are obliged to inform on any doubts in relation to the going concern also in a separate paragraph in the Notes to the financial statements.
6. VAT and customs duties
In the VAT area, the state has taken a cautious approach. The deadlines for filing VAT returns and paying VAT remain unchanged.
The law enables to file a request for the remission of a missed deadline. However, this request brings a certain level of uncertainty, as the request is not filed in advance. This means that the taxpayer does not know whether sanctions will be imposed or not. The tax administrator handles each request individually.
Excessive VAT deductions are refunded in the standard deadline without any delay.
In the field of customs duties, the approved measures include the suspension of enforcement procedures when collecting arrears and remission of sanctions for some violations of the customs law.
7. Option to deduct unutilised losses
This measure is still being discussed by experts. It can be expected that the maximum amount of one-time tax loss deduction in the 2019 tax return will be limited to €1 million.
8. Failure to meet deadlines and suspension of tax proceedings
If the taxpayer fails to meet the deadline which lapsed during the pandemic, the deadline will be considered met if it is met by the end of the calendar month following the end of the pandemic.
Upon the request of the taxpayer, tax audits and tax proceedings which started before the pandemic outbreak will be suspended. If the tax audit was suspended before the pandemic outbreak, it remains suspended. If an audit focuses on the legitimacy of the excessive VAT deduction, the tax administrator can refund the undisputed part of the VAT. Tax proceedings in which decisions on the refund of tax overpayment are made are not suspended.
9. Statutes of limitation
Time limits stipulating the period until which the tax administrator may start tax proceedings including audits are frozen during the pandemic period.
10. Assigning of % of paid tax to non-profit organisations
Employees can submit a statement on assigning the part of the paid tax until the end of the second calendar month after the end of pandemic. Also the extension of the deadline for using the 2 percent or 3 percent is being considered.
For more details see: www.bmb.sk
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Renáta Bláhová is tax advisor, partner in BMB Partners and advisor to the finance minister