With COVID-19 playing havocs on most businesses, the government’s measures with regard to tax deadlines and compensation is a matter of concern.
Paying taxes is a significant aspect that affect business liquidity and profitability. At the difficult times when economy is on the downward slide, understanding the implication is important. These include unusual and sudden losses, incurring of extra costs to protect employee safety and welfare and unforeseen staffs changes that largely affect any business’ general tax situation.
To rectify this issue, certain useful measures can be taken to lighten the burden. By changing the tax payment deadlines, entities can largely benefit. Companies that function with many powers need a central unified management system to manage cash flow.
This is what can be done
Implement cash management policies
A company must have a proper tax management system integral to the overall cash management system primarily to control profits and shrinking margins. Certain areas that need serious consideration includes mon-cash employee benefits, bad debt write-offs, goods and services tax or harmonized sales tax (GST/HST), Quebec sales tax and provincial sales taxes, trade and customs, prompt filing of tax returns to bring forward tax refunds and timely representation of reductions. Most business need to evaluate a mechanism by which they can easily reduce tax. Businesses must contemplate the customs duty influence if different suppliers are engaged.
Develop the tax spot
Primarily businesses need to define their strategies to illustrate their tax position.Some of the ideas include managing the effective tax rate and regulatory capital requirements. Study how deferred tax assets (DTAs) affects the overall business. Another success formula is to keep in mind the DTAs and how they can be used in an appropriate manner.
Review the corporate mechanism
It is best to review the corporate structure to understand the impact of thin capitalization, change of ownership, mind and management and M&A restructuring issues, transfer pricing (and ensuring no loss of deductions globally) coupled with industry issues that might arise. Taking control of these opportunities may bring about savings in the medium term.
Asset sale plans
Scrutinizing the tax inferences of asset sale strategies can create a system managing the tax position of employees carefully. Some of the steps that can be taken in this regard includes writing down obsolete inventory and investments and the crystalization of unrealized tax positions (e.g. forex exposures), along with undertaking a more comprehensive analysis of year- end provisions and accruals. To combat internal losses and recovery techniques, refreshing ideas are always welcomed.
Finance setup within the house
Review your cross-border financing actions to make sure that the debt/equity ratio is apt for the existing economic times. Additionally, the rate levied on the debt should be appropriate and withholding tax responsibilities should be relaxed to minimize penalties.
Enhance tax incentives and credits
Businesses should have a thorough knowledge about support policies that the government is providing in these difficult times. For example, endowments and tax incentives for research and development activities can offer significant tax savings. Partnerships with government should bring about positive impact, one that ensures financial savings. Businesses must comprehend and influence special tax exemptions and deductions given by governments during difficult times that can bring about a positive change to the cash flow mechanism including donation tax credits for entities who donate largely towards public disaster programmes.
Think about your employees
Most of the companies allow their employees to work from home and may also relocate them to another place. These transfers may effect personal taxes, employer taxes and corporate tax. Employers have to make a tough decision to place employees on either unpaid or part-paid leave to cut costs. In certain risky situations, employers may consider to give up their salaries and other perks. All of these activities may have possible tax allegations both personal and corporate tax.