The OECD has outlined emergency tax measures that governments can adopt to respond immediately to the economic fallout of the coronavirus pandemic, sending a clear message: Do whatever you can now to keep taxpayers afloat.
In documents posted March 21 on the OECD’s new platform focused on policy responses to the growing COVID-19 crisis, the Centre for Tax Policy and Administration (CTPA) and Forum on Tax Administration (FTA) set out some short-term measures intended to assist governments adopting emergency tax policies and tax administrations supporting taxpayers. The documents clarify that the potential actions are not recommendations.
However, all the measures have one common goal, which is to give countries the necessary tools to do all they can to immediately curb the economic fallout of the crisis, no matter the cost, according to Pascal Saint-Amans, director of the CTPA. “It’s an unambiguous message — you must do whatever you can for companies to survive, for employees to survive, [and] for the infrastructure and capacities to remain intact,” he told Tax Notes.
The work came about after OECD members asked for ways in which they can respond to the crisis, Saint-Amans said.
In addition to waiving or delaying payroll-related taxes, governments could also waive or defer employer and self-employed social security contributions, according to the OECD. Other emergency tax policy responses to the crisis include giving tax breaks to workers in health and other emergency-response sectors as a reward for high-risk work and long hours. Such breaks could provide an incentive for retired workers in these sectors to reenter the workforce without jeopardizing their pension entitlements, the OECD said.
Countries could give taxpayers more time to handle their tax affairs, such as by amending tax return filing and payment requirements and issuing faster tax refunds. Deferring or adjusting business income tax advance payments based on revised expected tax liability that is more in line with a taxpayer’s likely final tax liability after taking into account the pandemic’s expected effect on turnover may also be an option for governments.
And governments might make loss carryforward provisions more generous, such as by turning loss carryforward provisions into a loss carry-backward provision, in which businesses could choose to get a one-time cash payment, the OECD said. Such a payment could be equivalent to a business’s cumulative tax losses multiplied by a country’s statutory corporate tax rate.
Delaying or waiving taxes levied on a tax base that is not immediately affected by the economic cycle, such as property taxes or business turnover taxes, may be an option as well.
On the VAT front, governments could defer VAT payments and customs or excise duties for imports, such as medicine, food, and capital goods, the OECD said. They could also expedite excess input VAT refunds while implementing anti-fraud measures, and offer simplified procedures for claiming VAT relief on bad debts.
Other possible tax administration measures include suspending penalties and interest payments for late filing; deferring tax payments due in installments; suspending debt recovery, including wage garnishment and asset seizures; and suspending audits in cases that don’t involve fraud, according to the FTA.
Tax administrations may also offer enhanced services, such as dedicated hotlines and longer call center hours, and implement a clear communication strategy that includes dedicated websites, multi-channel media communications, and ways to identify and contact vulnerable taxpayers, the FTA said.
Although the tax measures are meant to provide an immediate, targeted response to help households and support business cash flow, governments will have to reevaluate their fiscal strategies once the coronavirus pandemic is close to containment, according to Saint-Amans. “We’re facing a completely new situation where we will have to take the time necessary to [do] the analytical work, and to reflect on what it means for the tax structure for the next weeks, months, but also years,” he added.
Tax policy can play a role not only in governments’ immediate response to the crisis, but also in future policy actions, including rebuilding their economies. The OECD is also joining forces with other international organizations so that they can gather data and carry out further analysis about the long-term implications of the COVID-19 emergency on tax policy, according to Saint-Amans.
“It’s much too early to say, but we recognize that it’s a very important contribution that the world will need, and we will mobilize a lot of resources to work on that,” he said.
The CTPA recently published a statement regarding its work on a multilateral solution to address the tax challenges of the digitalization of the economy in response to questions from journalists about the state of that work in light of the COVID-19 crisis, according to Saint-Amans. However, it may have given the impression that the CTPA was focusing only on that work and nothing else, he said.
The OECD continues its other work, including on global standards to abolish double taxation, international cooperation, and domestic resource mobilization, but it is prioritizing work on potential tax policy and administration COVID-19 responses, Saint-Amans added.
In a March 23 blog post, Saint-Amans also presented a tool kit for governments to use, comprising a database of all tax measures that governments have already adopted in response to the crisis. That database will be updated regularly, he said.
Daniel Bunn, vice president of global projects at the Tax Foundation, welcomed the OECD’s suggestions. “They’re basically in line with the way I’ve been thinking about how countries should be responding to the crisis, especially when it comes to . . . providing liquidity support for businesses,” he said.
Making loss carryforward provisions more generous will be particularly relevant because so many businesses will be in a loss position as a result of the pandemic, Bunn said. Countries should also consider how to adjust tax rates, tax bases, and tax payment schedules to provide liquidity support, he added.
Of course, governments should shift gears once the pandemic is contained and make tax policy adjustments to support long-term economic growth, according to Bunn. Keeping loss carryback and loss carryforward provisions as generous as possible and offering accelerated depreciation or full expensing are just a few measures that could help businesses get operations up and running again, he said.
Meanwhile, many world governments keep scrambling to curb the economic havoc that the coronavirus crisis has caused so far.
G-20 finance ministers and central bank governors on March 23 held a virtual meeting to discuss their economic response to the crisis. All delegates agreed to start working on a joint G-20 strategy “which will outline the individual and collective actions that G-20 has taken and will be taking to respond to the COVID-19 pandemic,” the group said in a statement. The Saudi G-20 presidency will hold an extraordinary virtual G-20 leaders' summit in the coming days to coordinate a global response to the crisis.
The United Kingdom also started moving legislation on March 23 that grants several powers to the government to address the crisis, following Chancellor of the Exchequer Rishi Sunak's March 20 economic relief package, which contains several mitigating measures, including deferring the next quarter of VAT payments for businesses so that “no business will pay any from now until the end of June." He added that they "will have until the end of the financial year to repay those bills.” Sunak also announced the deferral of self-assessment payments until January 2021 for the self-employed.
Treasury Secretary Steven Mnuchin also confirmed March 20 that the U.S. return filing deadline would be extended to July 15.