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The Impacts of COVID-19 on Taxation in Finland

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The Impacts of COVID-19 on Taxation in Finland The Impacts of COVID-19 on Taxation in Finland 17 April 2020 30 June 2021 Contents • VAT • Corporate Income Tax • 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 customs 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 taxes 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 trade, 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 exports 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 Finnish government 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.
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