Working on crisis prevention - Phase 3

Personnel & HR

Refresher courses and retraining of personnel

Employers can ensure continuity by providing refresher courses and retraining for employees. Refresher courses and retraining can help reduce the number of FTEs through the combining of jobs. Employees can also be moved to new or different posts. Employers that apply for NOW-2/NOW-3 are obliged to promote refresher courses and retraining. What is more, in the event of a reorganisation you are obliged, as an employer, to offer your employees suitable work. The government is making fifty million euros available for online training for employees.

Changes to travel and working arrangements of international employees

Employers who are considering offering employees the possibility of working from home on a more structural basis must take account of the fact that this can affect the tax and social security position of international employees.

From the perspective of employment law, the law of the country that employees and employers agree on (for example in the employment contract) applies to the employment relationship (choice of law) of most internationally operating employees. However, despite the agreed choice of law, it cannot be excluded that employees, after a period of time, can successfully invoke employment conditions which apply in the country in which they 'usually' perform their work, insofar as these provisions are more favourable than those on the grounds of the choice of law.

Remuneration and personal policy

The COVID-19 crisis is having an effect on pay packages. Depending on your type of company you must, for example, evaluate and amend the allocation of performance shares, participation plans and incentive payments. As regards the broader personnel policy, the question is where and how you want to start using your talented and key employees. A reorganisation to some extent may be necessary in order to create the required flexibility. As regards all these matters it is essential to draw up a communications strategy and plan for employees and other stakeholders. You can read more here about the effect of the crisis on Personnel & HR.

VAT & Customs

Flow of goods and VAT and customs

You may want, or be required, to divert your flow of goods. You can, for example, start keeping stocks at other locations (countries). In connection with VAT and customs obligations you must then remap your chain and carry out the corresponding data analysis and VAT and customs determination and optimisation. You must also check the VAT and customs impact of goods flows contracts.

Personnel & HR

You may be able to optimise the VAT relating to hiring (out) staff and the VAT deduction on the commercial use of goods and services by staff in order to improve your working capital.

Transfer of business

VAT requirements apply to the VAT-free transfer of businesses as a consequence of the crisis. Research from a VAT perspective is needed to identify or eliminate VAT risks.

Risk management measures

In the event of any changes, a review and possible adaptation of the risk management measures must be carried out with regard to VAT and customs.

Cash flows and working capital

You can also assess the possibilities of a structural saving on customs duties (review customs value, origin and rate) and deferment possibilities, for example on the grounds of data analysis. A VAT analysis of all outstanding and payable VAT amounts may generate opportunities for a structural improvement of VAT-related cash flows too.

Profits tax

Corporate income tax

Change in legal structure

In order to reduce maintenance costs, for example, you can consider the simplification of your group's legal structure and reducing the number of legal entities. In addition, a lower valuation of the business may provide momentum to resolve certain risks in the structure, such as the risks of a substantial interest or the application of anti-abuse measures, in a tax efficient way. However, you should bear in mind that it may be convenient, from a risk perspective, to keep certain (risky) activities and assets legally separate. You must also check to what extent a simplification would have consequences for immediately payable tax.

Restructuring of debts for a sustainable future

A restructuring of debt obligations may provide a solution if it becomes more difficult to continue fulfilling these in the longer term. Particularly if the debt obligations in your sector are undervalued by the market, there are possibilities to restructure this in a cost-efficient way. One example would be the repurchase of debt obligations by the debtor or another group entity or a third party/ creditor. There will be fiscal consequences no matter what you do. Depending on your company structure you can lower the charges and thereby improve your liquidity position.

Permanent establishment risks

In many cases the COVID-19 crisis means that employers have asked employees to work from home. Sometimes the employee's country of residence is a different country to the country in which the employer has its place of business and in which the activities usually take place. The question is whether this situation can lead to the permanent establishment of the employer in the employee's country of residence, with the consequence being non-compliance with the rules and sometimes even double taxation. Usually this is not the case because there is no long-term element. However, the expectation is that, in many cases, working from home is (partially) going to become the 'new normal'. This increases the risk of the employer having a permanent establishment in the employee's country. Because this differs per country and type of tax, it would be good for you as an employer to assess these risks 

Change to transfer-pricing model

What long-term influence is the COVID-19 crisis going to have on your flow of goods? Lots of companies are anticipating structural changes and this may mean that your transfer-pricing model will have to be changed.

Financing

Contracts

Entering into new contracts

When entering into new contracts, include a clear force majeure clause which at least regulates that a virus (epidemic, pandemic) constitutes force majeure. If both parties expect that a revival of the coronavirus could lead to problems with regard to meeting your obligations under the agreement, a specific COVID-19 clause could provide for a reasonable risk allocation in advance. This could avoid long and complex discussions afterwards.

International

Crisis measures abroad

Across the globe governments are taking support measures in connection with the coronavirus crisis. These may apply to your industry or sector. See here for an overview of the International (fiscal) support measures.

Companies' place of business

Companies are considered to be established at the location at which the directors actually manage them. Due to the travel restrictions as a consequence of the coronavirus measures it may be the case that directors are temporarily managing the company from a different country. If this is permanent, it may result in the company's place of business - and with that the place at which that company's profit is taxed - shifting to a different country. The decision to manage a company structurally from another country - for example tele-working that was started during the COVID-19 crisis and continues after it has ended - may also be taken on a strategic basis. It is therefore a good idea for you to understand the consequences of such a decision. 

Permanent establishment risks

In many cases the COVID-19 crisis means that employers have asked employees to work from home. Sometimes the employee's country of residence is a different country to the country in which the employer has its place of business and in which the activities usually take place. The question is whether this situation can lead to the permanent establishment of the employer in the employee's country of residence, with the consequence being non-compliance with the rules and sometimes even double taxation. Usually this is not the case because there is no long-term element. However, the expectation is that, in many cases, working from home is (partially) going to become the 'new normal'. This increases the risk of the employer having a permanent establishment in the employee's country. Because this differs per country and type of tax, it would be good for you as an employer to assess these risks.

Cross-border employment

In practice it may be the case that employees live in one country but work in another. Tax treaties divide the authority to levy between the country of residence and the country of employment. It is not yet known what the 'new way of working' is going to look like after the coronavirus crisis. Employers that are considering offering employees the possibility of working from home on a more structural basis must take account of the fact that this can affect the tax and social security position of international employees, as well as the treaties preventing double taxation which mean that the authority to levy may shift from the country of employment to the country of residence and vice versa. Because this differs per country and type of tax, it would be good for you as an employer to assess the effects and compliance obligations.

Family businesses

Business succession and the possibility of your business having a low value

Because the value of your business may be relatively low at the moment due to the COVID-19 crisis, this may be a suitable point in time from a tax perspective to consider business succession or transferring your company to your children. If you want to give away some of the value of your family business when transferring it to another party and would like to use the business succession scheme (BOR), various conditions must of course be fulfilled.

The use of cum pref shares

One alternative is to convert ordinary shares into cumulative preference shares and arrange for the children to acquire new ordinary shares. The future increase in value will then benefit the children and the cum pref shares can be gifted later at the current low value or bequeathed to the children under application of the BOR.

Substantiation and/or agreement on lower going-concern value

Business succession can have far-reaching consequences. The moment of the transfer must, of course, tie in with your personal and business situation. It is also important in both the aforementioned instances that you can properly substantiate the (currently lower) going-concern value or preferably agree it with the tax authorities. If it transpires later, during an assessment by the tax authorities, that you applied an excessively low value, the difference between the actual value and the lower value applied may be regarded as a gift and combined with an extra substantial interest levy for personal income tax.