The Impacts of COVID-19 on Taxation in

17 April 2020

30 June 2021

Contents

• VAT

• Corporate Income

• Taxation, social security and immigration issues related to globally mobile workforce

• Legal Considerations

• Key Contacts VAT 1. VAT return filing 2. Payment arrangements granted by Finnish Tax Authorities 3. Accelerated VAT deductions 4. Timing of invoices and VAT payments 5. Self-billing 6. Credit losses 7. Correcting input and output VAT in VAT returns 8. VAT liability and cancellations in the tourist industry 9. VAT on gift cards 10. VAT liability of landlords 11. Optimization of the procedure 12. Business restructurings 13. Medical equipment

1. VAT return filing 4. Timing of invoices and VAT payments

It is not possible to get extension to the filing deadline of VAT returns. Late filing Timing of output VAT payments to the Tax Authorities can be optimized, if invoices issued penalties and late payment interest can be removed on specific reasons only and at the end of the month can be issued in the beginning of the following month. This would only if requested by the taxpayer. An acceptable reason could be e.g. the person allow one month additional time for the payment of VAT. If VAT is paid on invoice date filing returns falling ill. Therefore, in practice this relief will not help companies in basis and extra payment time is granted to customers, it would be profitable that invoices financial difficulties. VAT returns should be filed even if the business is not able to would only be issued during the month of the new due date. Thus, the payment of VAT pay. can be postponed to the VAT return given from the last month of the financial year. In addition, the old invoice must be credited in order to move the date of VAT payment. 2. Payment arrangements granted by Finnish Tax Authorities Companies can also improve cash flow if they file on a cash basis method, where possible, and thus, pay output VAT only when payment is received from the customers. Companies with temporary financial difficulties can request payment arrangements from the Tax Administration that allows the company to have extra 5. Self-billing time to pay taxes. The simplified payment arrangement can be applied in the MyTax in 21.4.2021-31.8.2021. Self-billing enables businesses to control and minimize delays between payment to suppliers and input tax recovery. Contrary to previous practice, companies having previous payment arrangement in force or companies whose payment arrangement has lapsed may also apply for 6. Credit losses a payment arrangement. The late-payment interest for the simplified payment arrangement will be 2.5 %. The the first payment of taxes is one month after the For VAT purposes, a seller can deduct credit losses from the tax base. Thus, credit losses request is approved. Taxes included in the payment arrangement are not sent to reduce also the amount of VAT payable. If the buyer subsequently pays the receivable or execution authorities and the company’s tax debt is not published in the tax debt part thereof, the amount previously deducted as a credit loss needs to be added to the register. tax base and the amount of VAT has to be paid. All items recognized as a credit loss in accordance with good accounting practice may considered as credit losses for VAT 3. Accelerated VAT deductions purposes. Voluntary debt relief is not considered to be a credit loss according to legal praxis of the Finnish Supreme Administrative court (KHO 26.10.1995 T 4335 and Companies should make sure that VAT included in the purchase price is deducted, 24.9.1998 T 1952). However, portions deducted from the sales receivable according to a when possible, in the VAT return of month when the purchase has been made. debt restructuring program approved by the customer should be treated as the seller’s This could be done regardless of whether the invoice has been already received credit losses in which case the buyer would not need to adjust its corresponding or not. According to the Finnish Tax Administration, the processing of VAT refunds deductions either. This has been confirmed in the Finnish Supreme Administrative Court’s has been streamlined due to the COVID-situation. Most of the VAT returns are case KHO 1997:69. processed within about a week, after which returns are paid to customers.

The impacts of COVID-19 on Taxation in Finland June 2021 PwC 4

10. VAT liability of landlords 7. Correcting input and output VAT in VAT returns Property owners must pay attention that tenants will continue to be liable for VAT, if If a company overpaid VAT or has not claimed all input VAT deductions, corrections agreed in the lease agreement. Otherwise, the VAT deductions may have to be paid must be made during the 3 year statute of limitation period. The three year period back to the Tax Authorities. If the tenant goes bankrupt, it is possible that the month, starts from the beginning of the calendar year that follows the year the tax relates to. during which the bankruptcy estate has the right to remain in the premises, does not Accordingly, calendar year 2018 is open for corrections until 31.12.2021. remove the right to opt to tax even if the bankruptcy estate does not liquidate the property as a taxable person. If the lease agreement is renewed with the bankruptcy 8. VAT liability and cancellations in the tourist industry estate, VAT deductions on real estate improvements will have to be repaid.

Companies are currently struggling with the challenges of customer cancellations. Especially in the travel industry, travel and accommodation cancellations have put 11. Optimisation of the customs procedure companies in a very difficult position. In case of cancellation, the advance payment or cancellation fee kept by the seller is not always subject to VAT. The package sold For international , there are many cash flow enhancement methods in the field to the customer may contain parts that are not handed over to the customer, in of VAT and custom duties. Supply chains need to be modelled in a way that VAT is which case there is no connection between the service or the goods and not trapped in countries that are slow on VAT refunds. Sometimes a VAT registration consideration received. If there is no direct link between the service supplied and may be a cheaper way of guaranteeing cash flow than avoiding a registration. consideration received, there is no supply for VAT purposes. Different custom procedures can lead to major cash flow savings and ultimately to final savings of customs duties. All changes in the supply chain should be carefully 9. VAT on gift cards examined from the point of view of taxes, duties, quotas and sanctions, as well as and import restrictions. Voucher VAT legislation, which came into force in 2019, also gives room for cash flow planning. With a careful planning, gift cards may not be subject to VAT at the 12. Business restructurings time of purchase and VAT does not need to be paid for unused multipurpose vouchers. The need for business restructurings is growing in Finland and other countries. In such cases, the effects of the changes for VAT should be identified and valuated in advance. It is important to make sure that the process does not create additional VAT cost.

The impacts of COVID-19 on Taxation in Finland June 2021 PwC 5 13. Customs duties and VAT on the import, domestic sales On 7 December 2020, the Council of the European Union adopted an and intra-Community acquisitions of medical equipment amendment to the VAT Directive (2006/112 / EC). A new Article 129a has been added to allow Member States, as a temporary measure, to apply a reduced or The European Commission has published a decision (2020/491) on 3 April 2020 zero rate to the supplies of covid-19 vaccines and in vitro diagnostic medical which has suspended customs duties and VAT on the import of protective and devices (test kits) and closely related services. medical equipment used in the prevention against the COVID pandemic as of 30 January 2020. The European Commission has extended the length of the The reduction in tax treatment is applicable to both domestic acquisitions and exemption with the decision (2020/1573) published in October 2020 and now acquisitions from other EU member states. Only vaccines approved by the with the decision (EU 2020/491). The exemption will continue until 31.12.2021. Commission or a Member State are covered. The measures can be applied only to test kits that comply with certain regulations and directives of the European The exemption covers protective equipment such as face shields and protective Parliament and of the Council and with the requirements laid down in other clothing, and medical devices and equipment, such as ventilators, testing kits applicable Union harmonization legislation. According to the article, the and hand sanitizer. measures can be applied until 31 December 2022.

The exemption is mainly applied to goods imported by or on behalf of The has submitted a U-letter to Parliament regarding the state operators as public corporations, public associations and other public amendment of the directive. The government supports the proposed amendment bodies but also, the exemption will apply to goods imported by or on behalf of to the directive. Amendments to the directive do not require legislative changes charitable or philanthropic organizations approved by the competent authorities as the current temporary legislation regarding goods used in the prevention, of the EU country. In practice, providers of nursing services and outsourced testing and treatment of the Covid-19 infection is sufficient to cover the health services are entitled to purchase tax-exempt goods such as masks, hand zero-rate/reduced rate for vaccines and test kits. sanitizers and test apparatus, but occupational health care, for example, is not. Based on the experiences gained during the course of the COVID pandemic, the In Finland, the intra-Community acquisitions and domestic sales of European Commission published on 12 April 2021 its proposal for a directive protective and medical equipment for producers of public health and medical amendment to exempt from VAT supplies to EU bodies of goods and services care and social services are also temporarily zero VAT rated based on domestic used to combat public health crises, when the goods and services acquired are legislation until 31 December 2021. put at the disposal of the Member States. The directive amendment was meant to enter into force on 30 April 2021 but the legislative process is still pending. The directive will apply retroactively as from 1 January 2021.

The impacts of COVID-19 on Taxation in Finland June 2021 PwC 6 Corporate (CIT)

1. CIT filing 2. CIT prepayments – cash flow impact 3. Global changes 1. CIT filing 3 Global changes

The filing deadline for corporate income tax returns has been extended by one Many countries have introduced reliefs and deferrals. Follow the latest month from four months to five months. This applies for limited liability country-specific rules here. companies, branches and PEs where the accounting period has ended in December 2020. The extended due date is on 31 May 2021. We recommend that taxpayers develop a process to follow and assess these changes. We suggest mapping out key country tax payments and timetables, The filing deadline for tax returns for other accounting periods has not been prioritizing larger upcoming payments. It should also be understood whether extended. reliefs generate additional costs such as non tax-deductible interest expenses. 2. CIT prepayments – cash flow impact

The prepayment amounts are based on taxpayers’ estimated taxable profits. If the actual income or expenses differ from the original estimates, the taxpayer may request a change to their prepayments. Changes to CIT prepayments for both current and future years may be applied for in MyTax.

We recommend checking FY20 and FY21 tax prepayments against updated financial estimates – a reduction of monthly prepayments can be applied for.

The impacts of COVID-19 on Taxation in Finland June 2021 PwC 8 Taxation, social security and immigration issues related to globally mobile workforce

1. Determining Finnish personal income tax liability 2. Individual income tax return filing 3. Payroll reporting to incomes register 4. Social security 5. Immigration 6. A checklist to work with 1. Determining Finnish personal income tax liability Finnish nationals Foreign nationals The taxation of Finnish nationals that have been working abroad on assignment For foreign nationals working on an assignment or as a commuter or a project or as commuters and who now have been instructed to return to Finland due to worker, the actual stay in Finland has an impact to the status. force majeure caused by the pandemic, may also be affected.

The restrictions for traveling (including possible regional travel restrictions if still To the extent they work remotely from Finland it should be noted that the salary valid at the time of arrival at time) and may have an impact to personal income received during this period can be deemed taxable in Finland, even if the taxation as well as employer liabilities in case an employee’s physical stay in assignment salary could be otherwise be tax-exempt from Finnish taxation. This Finland unexpectedly should be evaluated on a case-by-case basis. • exceeds continuous period of six months; On the other hand unexpected prolonged stay abroad may cause tax • exceeds 183-days per rolling 12 month period/calendar year; consequences in the host country, if certain thresholds of the stay there are • stays below continuous period of six months; or exceeded. • does not exceed 183 days per rolling 12 month period/calendar year. Furthermore, partly depending whether the employee(s) continues to work in the The Finnish tax authorities have announced that the pandemic does not have an host country and the nature of the work, the prolonged stay may cause issues impact to interpretation of residence status based on domestic rules or double related to corporate taxation and employer obligations. tax treaties (DTT). 2. Individual income tax return filing The residence status for domestic and/or DTT purposes has an impact to applicable and/or liability to file an individual income tax return as well as The tax authorities in Finland have communicated that the pandemic, does not ultimate taxation right make it necessary to grant an extension to any individual income tax return filing dates by default but encourage all individuals to file their tax returns electronically through MyTax (OmaVero).

The impacts of COVID-19 on Taxation in Finland June 2021 PwC 10 3. Payroll reporting to Incomes Register 4. Social security

Foreign employers with no taxable presence in Finland The assignees who currently hold an A1 certificate and cannot return to their home country due to the globally introduced travel restrictions as originally In the event of employee’s/employees’ unexpectedly prolonged stay in Finland planned should apply for an extension to their existing A1 (social security) also foreign employers without a in Finland may be certificate in order to avoid liability to include them to host country statutory liable to report salaries paid to these individuals to Incomes Register. social security coverage.

The filing needs to be done electronically, per individual and per payment. There may be also need to extend assignment or similar agreements also in this respect. The Tax Administration has informed that late-filing penalties for reports submitted late are not imposed in 2020 unless it is evident that the negligence of The liability to obtain an A1 certificate may also apply to short term business reporting shows obvious disregard. visitors who have become liable to work remotely from abroad due to existing travel restrictions or suspended airline operations. In case of unexpectedly shorter stay in Finland there may be need to file corrections to Incomes Register (stay does not exceed 6 months as originally The Finnish social security authorities instruct that they should also be informed intended). of cancelled or postponed assignments as well as interruption of assignments. Based on this notification the issued A1-certificates will then be cancelled and Finnish employers or foreign employers with presence in Finland new A1 certificates should be applied when the assignment takes place or/continues. In case the data reported to the Incomes Register by a Finnish employer has become false due to unexpected repatriation or extended stay abroad the However, the multistate A1 certificates possibly held by project workers or employer or other payer must correct the data they have submitted. commuters remain valid.

The corrections to reported payroll data must be made without delay.

The Tax Authorities have announced that due to the Covid-19 epidemics, it may be difficult for companies and/or accountants to submit reports to the Incomes Register. If the reporting of paid wages is delayed due to falling ill, the Incomes Register's late-filing penalty will not be imposed in 2020.

The impacts of COVID-19 on Taxation in Finland June 2021 PwC 11 5. Travel restrictions and immigration 6. A checklist to work with

The majority of countries have imposed additional restrictions on who can enter the To summarize the issues to be identified to understand how the current country. The situation changes rapidly and new restrictions may be imposed (and later pandemic is affecting both your globally mobile workforce and your liabilities as lifted) at a rapid pace. It is, thus, important to check the latest information for each employer: country before making any decisions. 1. Identify where your globally mobile employees currently are and what is In January 2021, the government decided to further tighten travel restrictions in Finland the intended length of the stay abroad. in order to better combat the spread of the new coronavirus variant. The current restrictions are valid at least until May 25, 2021. Information on entry restrictions can be 2. Identify the employees who are at risk to be subject to tax in Finland found on the Finnish Border Guard's website. due to extended stay in Finland or due to unexpected repatriation to Finland. Finland suspended the acceptance and processing of residence permit applications as of 19 March 2020 for the time being. However, since 16 June 2020, the processing of 3. Confirm the travel day data of all globally mobile workforce residence permits has been partially resumed in the missions. The situation of the mission varies on a country basis, and in some missions the acceptance of permit 4. Confirm the validity period of the existing social security certificates and applications is still suspended. The missions for each country will provide more residence and/or work permits to identify which require immediate information on possible country-specific arrangements. measures.

The Finnish Immigration Service still accepts new residence permit applications online. 5. Identify the consequences to taxation and employer obligations in the The applications will in practice not be processed until the mission has re-opened and home/host location(s) (other country than Finland) as well. the applicant is able to visit the mission for identification purposes. Nevertheless, we recommend preparing applications as soon as possible to avoid additional delays. Due 6. Inform both payroll and the employees of the potential impact the to the current situation, it is good to be prepared for delays in the residence permit changes in working conditions have to the employees’ tax and social process. security as well as immigration position.

. The impacts of COVID-19 on Taxation in Finland June 2021 PwC 12 Legal considerations

1. Employment

(a) What tools do you have to reduce employment costs and how to use them?

(b) Do you need help in employment disputes or co-operation procedures? 2. Lease agreements

(a) Does the landlord/tenant have a force majeure under the current circumstances?

(b) How to react when (i) a tenant asks for rent decrease or (ii) the landlord does not accept any rent decrease requests? More information • GlobalVATOnline_COVID-19_Global Updates

• Navigate Tax Measures in Response to COVID-19 • Accounting implications of the COVID-19

14 Contact us

Juha Laitinen Maarit Pokkinen Iain McCarthy Partner, Services Partner, Indirect Tax Services Partner, Services Mobile: +358 50 563 9020 Mobile: +358 50 337 7805 Mobile: +358 400 172 001 [email protected] [email protected] [email protected]

Risto Löf Joni Painilainen Partner, People & Organisation Partner, Legal Mobile: +358 50 358 2704 Mobile: +358 400 866 070 [email protected] [email protected]

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers Oy, its members, employees and agents do not accept or assume any liability, responsibility or of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2021 PricewaterhouseCoopers Oy. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.