The coronavirus has recently and unexpectedly entered our lives and the lives of billions of people around the world, and its many adverse effects can already be felt. First and foremost are the direct health concerns, but the economic consequences are equally troubling and are an indirect detriment to our health. The number of people who are either unemployed or on unpaid leave is already staggeringly high, with the future veiled in uncertainty. Many businesses are already struggling or are managing to “stay afloat” only by adopting extraordinary measures.
In light of the challenging economic situation, many of the world’s governments are attempting to provide assistance through various economic plans, many of which are still undergoing revision and adjustment. The U.S. has introduced an incentive plan worth approximately USD 2 trillion (about 10% of the U.S. GDP), which comprises tax and other incentives, including cash payouts for individuals and loans for businesses. The U.K. has prepared a widespread economic plan which includes partial subsidization of employee salaries (up to the higher of 80% of the employee's monthly salary or GBP 2,500) for employers who undertake to refrain from dismissing employees, as well as various tax and rent benefits for low-income residential tenants. Germany has finalized an economic assistance plan worth hundreds of billions of Euros (approximately 20% of Germany’s GDP) which includes grants and loans for businesses, in addition to the acquisition of struggling public and private companies, and compensation for employees and businesses incurring losses due to the shortening of the work week and deferral of tax payments. Similarly, many other states around the world have issued grants, salary subsidies, loans, tax payment deferments, and the like. Discussions have also been held in Israel regarding a comprehensive plan for economic assistance, worth tens of billions of NIS, which would increase the existing government deficit.
In the meantime, several measures have already been introduced in Israel, such as: (a) a small and medium enterprise assistance fund (offering state-guaranteed loans); (b) a large enterprise assistance fund; (c) expanded eligibility for unemployment benefits (shortening the qualification period, prolonging the entitlement period, waiving the requirement for exhaustion of all paid leave days as a condition for benefits); (d) payment of an unemployment allowance of up to NIS 4,000 to employees over retirement age who have taken unpaid leave or been dismissed; (e) an unprecedented, yet limited (up to NIS 6,000 for 2 months), payment of unemployment allowance to the self-employed. It appears that some of the assistance to the self-employed will be granted through deferral of tax payment and partial or full waivers of payment for utilities and municipal taxes. Part of the additional government budget will be invested in the following: the healthcare system, development of physical infrastructure and assistance to the hi-tech industry, the main vehicle for growth in e Israel’s economy. As mentioned above, Israel’s plans are still being formulated and may be subject to change.
With respect to Israeli taxation, several interim measures, most of which are technical and relatively minor, have been introduced, such as: (a) temporary recognition of copies of invoices, for the purposes of input tax deduction credits with respect to transactions conducted between March and May 2020; (b) immediate payment of tax refund; (c) a 2-month deferral of the income tax report filing date for 2019; (d) extended validity of 2019 tax status certification (until June 13, 2020); (e) extended validity of tax deduction certification (from March 31, 2020 to April 30, 2020); and (f) postponement of VAT filing and payment dates. Needless to say, the economic crisis resulting from the coronavirus outbreak has, and will continue to have, additional tax implications on business decision-making and management, from recording damaged inventory, doubtful and bad debts, recognition of certain allowances, delayed or cancelled transactions, offsetting of losses, employee dismissal and re-hire, repricing of employee options, to matters of insolvency and bankruptcy.
For example, with respect to the issue of tax refunds for bad debts, inconsistent court rulings regarding different types of taxes (income tax, VAT, purchase tax, customs and excise tax), as well as the Israel Tax Authority's conservative approach, have led to unpredictability with regard to the conditions for refund entitlement, which, in turn, makes it harder for tax payers to receive a proper refund. We are hopeful, that in light of the current economic crisis, the Tax Authority will adopt a more lenient approach, instead of compounding the difficulties facing tax payers.
Until more certainty is reached with respect to the tax benefits offered by the State, we initially recommend reducing the ongoing pre-payments made by businesses to the Tax Authority, with a view to mitigating damages and adjusting payments to the expected drop in profits resultant from the current circumstances.