Question

As part of a tax relief plan to counter the economic effects of the Coronavirus, Congress has proposed sending $1,200 to certain individual taxpayers. If this provision were passed, would the recipients have to include the $1,200 in income? Answer “yes” or “no” and provide a BRIEF explanation.

Answer 1

Countries around the world are implementing emergency tax measures to support their debilitated economies under the coronavirus (COVID-19) threat.

Providing tax relief to the people and companies that are most affected, until the emergency abates, is welcome. Countries should consider tax relief measures because the health issue is creating a substantial economic shock. Taxes that require regular payments will impact the liquidity of businesses and households.

Therefore, governments should consider fiscal relief as a way of minimizing the economic impact from the health crisis.

As policymakers navigate this crisis, they should hue to the following principles:

A)Tax relief should be broad-based.

B)Tax relief should be in keeping with good long-term policy. Distorting markets today will undermine the long-term recovery.

C)Using refundable tax credits today should be designed to bring forward future credits or deductions.

D) Policymakers should also use this opportunity to fix distortive tax policies that could impede recovery efforts.

Governments are slowly realising that businesses of all sizes will need more support during the uncertainty presented by the coronavirus because many companies risk bankruptcy or permanent closure during these times. Like the 2008 financial crisis, the COVID-19 crisis will have a significant impact on government coffers, business profits and the underlying backbone of some countries’ infrastructure.

he global outbreak of COVID-19 is significantly affecting businesses and their employees, as well as the wider domestic and global economies. To help tax professionals understand the tax impact, ITR is offering a digestible range of articles.

Governments are trying to help their nations in these trying times

Governments are slowly realising that businesses of all sizes will need more support during the uncertainty presented by the coronavirus because many companies risk bankruptcy or permanent closure during these times. Like the 2008 financial crisis, the COVID-19 crisis will have a significant impact on government coffers, business profits and the underlying backbone of some countries’ infrastructure.

Nevertheless, the OECD says it is continuing with its work on finding a unified approach to tax the digitalisation of the economy – now an even more important task as businesses must expedite their digitalisation plans.

See ITR’s latest content on the developments affecting tax here:

• Coronavirus disrupts corporate reporting and compliance
• Large businesses relieved over UK’s IR35 delay
• China’s STA introduces tax measures to manage COVID-19 implications
• UK budget curbs short-term business uncertainty
• Singapore announces tax measures to manage COVID-19
• China announces tax relief measures to tackle coronavirus disruption
• UK budget breaks with EU VAT rules for financial services

China sets the precedent

As China begins to emerge from the worst period of the virus, the State Taxation Administration of China (STA) has written exclusively for ITR,explaining which measures it has implemented for all taxpayers to manage the social and economic implications of the coronavirus.

This STA article is complemented by Lewis Lu of KPMG China, explaining the measures that the country has implemented for businesses.

The STA says it is tackling all the necessary areas for taxpayers, such as offering the tax incentives announced by the government and ensuring there is economic support for businesses. The Chinese tax authority has set the marker in tax compliance too, by showing that it knows many businesses are operating with a reduced workforce that affects compliance. As such, it has introduced measures to extend deadlines and implemented procedures to limit interaction when face-to-face conversations have to take place.

Sadly, however, not all governments are taking note of what China is doing. For example, in India, where the number of infected individuals is growing, the government has been criticised for being too slow to respond. The tax department has barely changed any practices to adapt to the new – but temporary – reality.

UK trails behind the rest of the EU

In a similar vein, the UK’s government is trailing behind many of its European counterparts to adapt. Sources at the country’s tax authority, HM Revenue and Customs, told ITR that the lack of a clear contingency plan has left many tax officers confused. Tax officers were being told to continue their on-site tax assessments as normal, only to be told a few hours later that they should do these virtually while working from their homes despite some not being given the hardware and digital tools required to do this.

However, the UK’s Chancellor of the Exchequer Rishi Sunak is finally recognising the impact on businesses. After a tough four weeks in his new role, Sunak’s first budget statement included tax measures to help struggling businesses.

Ben Jones, head of tax in London at Eversheds Sutherland said the measures were “a good response by the Chancellor to a concerned business environment right now. Many measures designed to assist survival in temporary downturn in consequence to coronavirus issues should help small- and medium-sized businesses.”

Although the announcements focused on small- and medium-sized enterprises (SMEs) Sunak later followed up with measures for larger companies.

To the relief of many big businesses, the UK’s off-payroll working rules (IR35) that were due to be extended to the private sector on April 6 2020 will be delayed for a further year.

“In contrast to the budget measures, many of these [emergency stimulus] changes will apply to all sizes of businesses,” said Chris Sanger, head of tax policy at EY UK. “A key area that was only hinted at was ‘employment support,’ which will be essential if jobs are to be maintained over the next few months. This is intended to provide some significant breathing room for those businesses worst affected by the social-distancing policy.”

Although the UK government has provided relief measures to deal with coronavirus outbreak, the UK has yet to go as far as other European countries in proposing a VAT payment holiday.

However, IFS Director Paul Johnson said the Chancellor will have to come back with more measures.

In Italy, one of the worst affected European countries, the government has stopped all tax audits and is now pushing through urgent legislation to “cure” the economic impact of the coronavirus, which includes a number of tax incentives, tax holidays and financial injections, but mostly for individuals, families and small businesses.

In Denmark, the government has closed schools, universities and large gatherings temporarily, while also postponing tax payment deadlines to offer some relief to businesses, including for VAT and employee taxes.

Similar actions have been taken in most European countries including France, Germany, the Netherlands, Spain, Norway, Switzerland, Sweden and others, with many countries extending tax-filing deadlines as a key part of the package.