In order to mitigate companies' temporary liquidity problems as a result of Covid-19, the Government proposes a possibility of postponement with payment of taxes and fees. What does the deferral mean and which companies can be granted? We will answer based on what we know at this stage.
This blog post was updated 2020-03-24 due to the new dates for when rules start to apply.
The proposed action aims to mitigate temporary liquidity problems that may arise for companies as a result of the outbreak of the new coronavirus and the measures to limit the spread of the infection. The new rules are proposed to enter into force on March 30 2020, but can be applied retroactively from January 1, 2020. Below we answer questions regarding the proposed rules and what currently applies.
What does the deferral result in?
According to the proposal deferral can be granted, upon application, with the payment of deducted preliminary tax on wages and employer's contributions and also on VAT, for a maximum of three accounting periods each during the period January – September 2020. As we interpret the proposal, the three accounting periods does not have to be consecutive, but instead whichever three accounting periods the company selects. However, in the case of VAT, deferral can only be granted for one accounting period if the company reports VAT on a quarterly basis. Furthermore, VAT that is reported on an annual basis is not covered by the proposal.
The deferral may last for a maximum of one year. It is proposed that a deferral be allowed even if the tax has already been paid, which could result in a surplus being generated on the tax account. Provided that no other tax is expected to fall due for payment it should be possible, in our estimation, to request payment from the tax account. This is in line with the stated purpose of strengthening companies' liquidity through the tax account.
Costs of the deferral?
The Government states that the deferral should be charged at a market rate. It is therefore proposed that an interest and a monthly deferral fee be levied on the granted deferred amount. The interest rate is currently 1.25 percent and the monthly deferral fee is 0.3 percent of the deferred amount per commenced calendar month. The monthly fee is payable upon termination of the deferment. Since the interest rate and the deferral fee are not tax deductible, the cost corresponds to a deductible interest rate of approximately 6.6 percent for the companies (if the deferral period is fully utilized), which is estimated to correspond to a market credit cost. Since part of the credit cost consists of interest rates, the total cost can change depending on how the interest rate develops.
Which companies can be granted deferral?
All companies that have deducted preliminary tax on wages and employers' fees as well as VAT during the accounting periods January - September 2020 can have this repaid by the Swedish Tax Agency.
Deferral will not be granted to companies that mismanage their finances or are otherwise rogue. Nor can deferral be granted to companies that have “non-negligible” tax liabilities.
How do companies apply for deferral?
There is no specific statement yet on how companies should apply for deferral in accordance with the proposal.
According to a notice on the Swedish Tax Agency's website, companies and private individuals who are experiencing problems with paying their taxes as a direct consequence of the corona virus can, pending changes in the legislation on deferral, seek postponement from the Swedish Tax Agency according to existing regulations, see link to the Swedish Tax Agency's website below. Postponement due to the coronary pandemic can, according to the current regulations, as a starting point be granted with two to four months.
The corona pandemic is an unforeseen event and something that is out of control of the affected companies. However, the company must still be able to show that payment will be possible after the deferral period has expired and that the payment problems therefore have been temporary.
The Parliament decides on the proposal on 26 March 2020 and the legislative amendments are proposed to enter into force on 30 March 2020.
According to current legislation, there must be special reasons for allowing postponement of payment of tax. As a starting point, postponement is granted for a maximum of two to four months. In our view, the proposed amendment would instead entail that special reasons are required (that the company mismanage its finances or has non-negligible tax liabilities) in order not to grant deferral. It is further proposed that deferral should be allowed for up to one year.
Please note that deferral according to the proposal can cover a maximum of three accounting periods and that it only relates to tax to be paid for accounting periods that occur January - September 2020. As we interpret the proposal, it doesn’t have to be three consecutive accounting periods, but instead whichever three accounting periods that the company selects. Also, as we interpret the proposal, it’s not necessary that the three accounting periods for deducted preliminary tax on wages and employer contributions are the same accounting periods as for VAT. However, if VAT is reported on a quarterly basis, deferral of VAT can only be granted for one accounting period.
There is no specific statement yet on how companies should apply for deferral in accordance with the proposal. According to a message on the Swedish Tax Agency's website, companies and individuals who have had payment problems as a direct consequence of the corona virus already, pending changes in the legislation on deferral, can seek postponement from the Swedish Tax Agency.