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EU Countries Offer Billions in COVID-19 Tax Relief

Posted on Mar. 24, 2020

EU member states are offering a variety of tax relief measures to ease the economic shock from the coronavirus. The measures in Belgium, France, Italy, and Sweden will cost at least €61 billion.

“Tax is a national competence, so there is no margin for an EU initiative,” an EU Council source said. The only guidance the EU has given on tax relief regarding the coronavirus is about state aid. On March 19 the European Commission adopted a temporary framework, which provides that tax advantages can be granted to undertakings that were not in difficulty before the coronavirus crisis, and that the aid must not exceed €800,000.

Belgium has decided to delay by two months payments of VAT, personal income tax, and corporate income tax. If those delays are not enough, a taxpayer may ask to pay in installments without any interest on late payments. This buffer amounts to €4.5 billion, according to Belgian Finance Minister Alexander De Croo.

France has introduced similar measures and says the postponement of payments of tax and social contributions by businesses will amount to €32 billion.

In addition to suspending tax payments for individuals and firms of the 11 municipalities of the so-called red zone (the area initially hit by the virus), Italy is also offering, among other relief, tax deductions of 30 percent for charitable donations linked to the COVID-19 emergency. The entire support package amounts to €25 billion.

In Cyprus, a measure that will have a direct impact on tax revenues is the temporary reduction in the standard rate of VAT from 19 percent to 17 percent. The reduced rate of VAT will also decrease from 9 percent to 7 percent.

Denmark is allowing a reduction in the prepayment of corporate income tax because the virus is expected to hurt business and prepayment is based on expected profits in 2020.

The same relief is available in the Netherlands by request. In Finland, companies in financial difficulty can request a payment arrangement for their taxes or a change to prepayments. In Luxembourg, businesses can request a waiver of the advance business tax payments for the first and second quarter of 2020. They will also be allowed to postpone the payment of business taxes and the net wealth tax.

In Germany and the Netherlands, tax reliefs won’t be automatic and are linked to conditionality. To defer tax payments (VAT, corporate income tax, or personal income tax), businesses must demonstrate that they have experienced problems as a result of the coronavirus crisis.

Spain will only allow deferral of tax debts (personal income tax withholding, debit VAT, and corporate income tax installments) for individual persons or entities with turnover not exceeding €6 million.

Poland and Slovakia both introduced measures related to losses. In Poland, early 2020 losses will be deductible from the 2019 corporate income tax payment. Slovakia plans to allow companies to carry forward losses for more than four tax years.

Slovenia will allow advance payments of tax and withholding tax to be delayed up to two years without interest in the case of loss of income from the coronavirus pandemic. Regular tax payments may also be delayed up to two years.

Sweden will allow three months of net VAT payments, employer social security contributions, and preliminary income tax payments on salaries due between January and September 2020 to be postponed 12 months with an interest charge. This measure is expected to cost around €15 million.

Member states might need to coordinate further on tax measures at some point, an EU official acknowledged.

EU finance ministers agreed March 23 with the commission’s March 20 assessment that the conditions for activating the general escape clause of the EU fiscal framework — that is, a severe economic downturn in the euro area or the Union as a whole — have been fulfilled. Activating the escape clause will allow the commission and the EU Council to combat the economic consequences of the pandemic while departing from normal budgetary requirements, the council said in a March 23 release. Basically, this means that member states will be able to provide public support to the economy without the constraints of the Stability and Growth Pact. They will be allowed to temporary deviate from their fiscal adjustments.

The EU has so far “committed to provide liquidity facilities of at least 10 percent of GDP, consisting of public guarantee schemes and deferred tax payments,” eurozone finance ministers estimated during a March 16 videoconference. The commission estimates that the economic shock of the COVID-19 outbreak might have an impact of 2.5 percent on the EU’s GDP growth, putting the continent in a recession in 2020. BusinessEurope asked for a “bold and coordinated approach” to addressing the crisis in a March 16 position paper. But some countries have gone further than others when it comes to tax relief measures.

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