The current pandemic not only puts great pressure on our healthcare system, it is also paralysing the economy. As businesses are suffering, cash flow management has become a top priority in many organisations. In this respect, cash tax forecasting can support groups in optimising their available cash.
Item #10: Cash tax forecasting
At macroeconomic level, governments have taken different initiatives to help businesses in maximising their cash tax position. Without going into the specifics of the automatic tax deferrals that have been implemented (click here), we included a shortlist of other items to consider when planning your next tax payment.
An updated business plan requires a correction of the tax line.
Whilst the current circumstances are putting a strain on most businesses, some companies are less affected by the current crisis or even experiencing a (short-term) uplift in revenues. Irrespective of the fact whether the updated business plan is written in black or in red, it warrants a careful review of the anticipated year-end tax charge. What initially seems to be a no-brainer may prove to be a challenging exercise when one starts considering the impact of the current situation on e.g. long-term intragroup receivables, MAC clauses in loan agreements, the 30% EBITDA impact of extended credit lines, possible tax implications of corporate reorganisations or financial restructurings, etc. Although we are sure that this will not have gone unnoticed, the tax model should also be updated to reflect the drop in the corporate income tax rate from 29.58% to 25% for accounting years that started on 1 January 2020 (relating to tax year 2021). Ironically, this is the first year in decades that no crisis surcharge is levied.
Apart from a revised business plan, the short-term cash forecast is an excellent tool for management to monitor the financial situation of the group. Also in this respect there are optimising actions possible from a tax perspective. A few examples:
Revisit your tax prepayments schedule.
To ensure timely payment of corporate income tax, the Belgian tax authorities impose a 6.75% surcharge on the corporate income tax due upon assessment, unless sufficient advance payments were made. As a support measure, the Minister of Finance announced earlier that the stimulus for Q3 and Q4 prepayments will be increased (reducing the necessity to make large Q1 and Q2 prepayments and allowing companies to delay their tax prepayments). This measure is only available to companies that refrain from performing a dividend distribution or capital reduction between 12 March 2020 and 31 December 2020.
Activate your tax receivables.
Taxpayers that are expecting a tax refund, may request the superfluous portion of prepayments or withholding tax – in whole or in part – to be refunded, to be used to discharge another tax liability or to be carried over to the next period.
Review your internal VAT processes.
Also from a VAT perspective, there are a lot of measures that taxpayers can take to optimise their cash tax position, e.g. review the booking process of purchase invoices to ensure early recovery of input VAT, bad debtors to ensure early refund of output VAT, apply for a monthly VAT refund license, apply for VAT grouping to eliminate VAT payments on intercompany transactions, the use of self-billing with possible application of reverse charge, etc.
Specific COVID-19 measures that do not automatically apply.
Companies that can demonstrate that they are facing difficulties directly resulting from the spread of the virus can request for payment arrangements (i.e. payment by instalments, exemption of late payment interest and/or remission of fines due to non-payment) for corporate income tax, VAT, wage withholding tax and social security tax purposes. The request for such arrangements should be motivated and formally filed prior to 30 June 2020.
While most companies have applied for the COVID-19 measures available by now, we see that quite some groups struggle to monitor closely their short-term (and certainly mid-term) cash position and how to manage and optimise it further to steer their company through this crisis in the best way possible. We meanwhile have created the following email platform: firstname.lastname@example.org in order to give you a sounding board in these challenging times.