From an economic point of view, the effects of the COVID-19 pandemic can still be mitigated by appropriate measures for the company at this point in time, in order to maintain its ability to act, but especially to avoid additional liquidity problems.
Ensuring the operational ability to act
COVID-19 is primarily a health issue. The significant spread and the measures taken to contain further spread may mean that the workers needed in the company are not available.
From an entrepreneurial point of view, the challenge is therefore to be able to realistically determine and plan the personnel situation on the one hand and also to ensure the health protection of employees who are not ill. On the other hand, it is also the responsibility of the company owner to ensure compliance with legal requirements, for example in the tax field, despite a shortage of staff due to illness (keyword: tax compliance).
This results in a wide range of questions, but also in possible courses of action:
- Establishment of an emergency management system with appropriate guidelines and clear communication and reporting channels
- Ensuring crisis communication for both internal and external purposes (media, suppliers, customers, banks, shareholders, etc.)
- Data protection-compliant elicitation and processing of personal health data of employees, surveying of guests and visitors of the company on Corona-relevant aspects, transfer of information to public authorities
- Adaptation of the production of work organization to the current demand situation, e.g. through reduced working hours, home office, etc., and resulting wage tax issues
- Development of a risk inventory with damage scenarios for each resource and corresponding mechanisms to ensure a smooth workflow on the company premises
- Ensuring the various workflow stages of the tax return process, e.g. data retrieval from ERP systems, preparation of the tax return, deadline checks and the review of tax assessments, but also preparation of the transfer pricing documentation and submission of the CBC reporting
- Correct mapping of special measures from a tax perspective, such as top-up payments to reduced hours compensation, continued remuneration, etc.
Liquidity protection measures
In addition to the operational ability to act, it is also important to keep the company financially able to act and consequently to review the cash flows and adjust them in line with the crisis. There are a variety of instruments available at short notice, including:
- Reduction or deferral options for advance and/or subsequent tax payments in the areas of income tax, corporate tax, trade tax and VAT.
- Optimum use of the support provided under the set of measures of the Federal Ministry of Finance and the Federal Ministry of Economics and Technology, e.g. Entrepreneur Loan (KfW-Unternehmerkredit), risk assumption for working capital loans or export credit guarantees (so-called Hermes Covers)
- Ensuring a speedy assessment procedure for expected tax refunds, especially from input tax surpluses
- Offsetting of reimbursement claims against non-deferred tax payables
- Exemption from judicial execution against the levy of outstanding tax liabilities
- Adjustment of transfer pricing margins through the allocation of exceptional costs, losses and lost revenues due to Covid-19-related economic impacts
- Strategies for avoiding/reducing intragroup withholding taxes
- Examination of possible reimbursement possibilities in the field of electricity and energy tax for companies in the producing sector
- Provisions for Covid-19-related risks, losses, restructuring measures, etc.
- Prevention of restrictions on deduction of interest in case of taking up debt capital
- Tax analysis concerning the qualification of state measures as unlawful aid (balance sheet effect in the company)
- Treatment of contract terminations and compensation payments from a tax perspective
- Liquidity planning and liquidity management
Structural measures
Even at short notice, but at least in the medium term, more far-reaching measures can be taken to protect the company permanently from unnecessary outflows of liquidity and thus make it stable in the face of crises:
- Cash-flow optimization through VAT group
- Adaptation of supply structures and goods flows
- Utilization of losses by profit-tax fiscal unities
- Restructuring and M&A support
- Prevention of future minimum profit taxation by minimizing current losses (e.g. use of recognition and measurement options, arrangements for generating profits).
- Taxation of retained earnings for partnerships
- Use of special customs procedures, e.g. customs warehouses or inward processing relief to reduce customs and import VAT debts
- Conception and implementation of cost reduction programs
- Optimization of working capital management
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