With the sudden appearance of COVID-19, many businesses encounter tough and violent challenges as shut down with a loss of revenue and removal of production capacity.
The preservation of the EBIT and especially the cash is critical. Therefore companies should focus on completing their 2019 tax credits on R&D might help to obtain cash refunds from the governments.
As part of the various public states measures, urgent tax incentives have been introduced such as:
- Possibility to postpone the Indirect Tax payments;
- Possibility to ask for a reimbursement of the 2020 corporate tax instalments already paid mainly during Q1-2020. In addition when corporations expect to get a losses as a forecast for 2020, there is the possibility to cancel the remaining corporate tax instalments.
- Postponement of filing deadlines for Indirect tax as well as Corporate tax returns;
Such measures may lead several countries to raise their tax rates and tax conditions in the coming years.
The world post COVID-19 remains uncertain and companies may rethink their value chain process by using tax design to improve their bottom line results.
Opportunities
1. Transfer pricing activity reorganization
In context of an economic downturn, tax-group reorganization is more favourable as it triggers lower valuation in respect of transfer of business activities, goodwill, Intellectual Property (IP).
Restructuring allows to benefit from the negative context to redesign the transfer pricing group policy by calibrating the benchmarks and efficiently re-streamline the generation of the value added creation in more tax efficient locations. In addition, tax losses generated during 2020 might be optimally utilized to reduce the exit tax impact.
2. Revisit of existing transfer pricing flows
The negative economic context offers possibilities to recalibrate the transfer pricing remuneration by streamlining the benchmarks. This may decrease the net income of the group subject to corporate tax in the various jurisdictions.
3. CFC – Controlled Foreign Company rules.
Group subject to CFC rules may also benefit from a favourable re-design in term of shareholding. Reorganizing the shareholding flows as well as the adequate level of substance might allow to minimize and optimize the negative impact of these rules.
As a conclusion, the world post COVID-19, remains uncertain and companies may take this opportunity to rethink their value chain process by using tax design to improve their bottom line results.
It is the right to elaborate a tax risk-benefit assessment.
Please feel free to contact us for more information.
Simon Massel
