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Coping with Covid-19 - the Business Response

Government business-support measures – what they are, how to claim them

By Wojciech Majkowski, director in the Corporate Tax Advisory Team and Dariusz Wójtowicz, manager in the Corporate Tax Advisory Team at KPMG in Poland
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Epidemics and economic slowdown have brought along great challenges. Long-term planning seems particularly difficult, therefore most businesses focus on securing short- and medium-term financial liquidity.

KPMG supports its clients in identifying and implementing solutions enhancing liquidity. Currently, we are focused on opportunities stemming from government’s Anti-Crisis Shields and Financial Shield of the PFR (Polish Development Fund), as well as the existing options, such as deferral of taxes and social security contributions.

The Shields consists of three main measures to support businesses:

  • co-financing of salaries by FGŚP (Guaranteed Employee Benefits Fund)

  • tax solutions allowing to postpone payment of current tax liabilities,

  • guarantees provided by Bank Gospodarstwa Krajowego (BGK), and other instruments of the Financial Shield.

Salary financing

Subsidies from FGŚP are offered to companies, regardless of their size, affected by falling revenues as a result of Covid-19. This measure is aimed at preserving jobs and may be particularly beneficial for businesses with large numbers of employees. The FGŚP finances part of employees’ salaries, covering those employees who have either been furloughed or whose working time has been reduced.

Subsidies are granted for three months and allow employers to obtain support amounting to 2,079.43 złotys per employee on reduced working time, or 1,300 złotys per employee on furlough. Financing is increased through the social security contributions due from the employer, in part financed by FGŚP.

A condition for financing is that a business’s revenues must have decreased by at least 15% (within a two-month comparative period year-to-year) or by 25% (within a monthly comparative period after 1 January 2020). Additional conditions are that an agreement has to have been reached with trade unions or employees’ representatives, and that the business was not in arrears with tax and social security payments at end of third quarter 2019.

KPMG in Poland offers dedicated product “applications in three steps” requiring to:

  • conduct a feasibility analysis, which includes calculating value of the subsidy,

  • prepare and conclude the agreement with trade unions and/or employees,

  • prepare and file the application.

Public funds allocated for financing may eventually run out, therefore KPMG advises its clients to avoid any delays in application.

Similar financing may also be obtained from local authorities. Amounts available depend on the actual decrease in revenues. However, this solution is addressed to medium-sized enterprises, and it cannot be combined with funds from FGŚP with respect to employees already covered by financing from the latter.

Existing tax solutions

The most popular solutions deployed in support of businesses hit by the economic effects of Covid-19 include deferred tax payments and instalment payments, which may be applied to income taxes and VAT. According to the provisions of government’s Anti-Crisis Shield, deferral and instalment of tax liabilities will not be subject to a prolongation fee. All taxpayers can apply for deferred payments or instalments, regardless of whether their businesses are already affected by economic slowdown, or whether they have justified reasons to expected it soon.

Obtaining deferral or instalments depends on the individual decision of a tax office and the available limit of public aid. In the past, this solution was rarely applied. However, due to the sudden economic slowdown caused by Covid-19, KPMG expects the tax authorities to present a more favourable approach.

KPMG helps its clients prepare applications, which includes calculating the public aid limits available, to maximise the chances of a positive outcome.

Other popular solutions include deferred payments of social security, analysis of write-offs covering uncollectable receivables in terms of tax-deductibility, and the application of so-called ‘bad debt’ reliefs for corporate income tax and VAT.

In the longer perspective, KPMG also expects firms to be interested in more comprehensive solutions aimed at cost reduction, such as simplifications of capital groups and other business restructurings, as well as tax groupings. Advanced Pricing Agreements (APA) may also gain popularity with respect to new prices applied in transactions with related parties in the new economic circumstances.

Tax solutions introduced by Anti-Crisis Shield

Government’s Anti-Crisis Shield introduced additional tax solutions available in the short- and medium term. The Shield’s provisions postpone annual reporting in corporate income tax along with payment of excess tax. Another provision allows for utilisation of tax losses incurred in relation to Covid-19 in 2020 within the settlements for 2019, up to 5m zlotys.

Another Shield solution is deferred payment of advances for minimum income tax on real estate, calculated on a property’s initial value. This solution should be particularly beneficial for taxpayers owning property of significant value, such as office buildings and malls. These taxpayers may also enjoy tax exemptions or deferral of local real estate tax, depending on relevant municipalities.

The Shield’s tax solutions include also measures aimed at businesses involved in counteracting the economic effects of Covid-19, such as one-off depreciation of fixed assets bought to produce goods related to counteracting epidemics, and the temporary possibility to deduct donations made to specific recipients related to fighting the epidemic. Unlike charitable donations, the donations related to Covid-19 may be tax-deductible upon payment. The level of tax deduction on such donations is 200% if made in April, or to 150% if made in May 2020.

Knowing its clients’ businesses, KPMG constantly analyses the applicable tax measures and informs clients about existing opportunities.

Financial solutions

New financial solutions include those addressed to medium and large-sized companies. BGK provides guarantees up to 80% of outstanding loans. PFR’s instruments are further divided between those addressed to SMEs and for large companies. Given that financial instruments are considered pubic aid, KPMG supports its clients with respective applications and processes.

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