[COVID-19] What about the VAT in regard to business payment deferral ?

Information current as of the date of publication of this article

Despite some uncertainty in the first government announcements, it is now certain that the possibility for taxpayers to request a deferral of payment does not apply to VAT.

The Government justifies this difference in treatment by the fact that VAT is not a burden for the company but for the final consumer and that, if a company experiences a drop in turnover because of Covid-19, its VAT burden will drop mechanically.

This reasoning seems to us to be open to criticism because the VAT burden due constitutes, just like direct taxes and social security contributions, a real burden in the cash flow of any company.

It would be wise for the Government to follow Belgium’s example by allowing the deferral of VAT payments.

However, under the current rules, each taxpayer must declare and pay VAT on the due dates.

Strict compliance with these deadlines is essential given the size of the penalty incurred in the event of delay (10% of the VAT due) but also given the tendency of the administration to consider such delay as constituting tax evasion, which exposes the delaying company to criminal prosecution.

Updated as at April 15, 2020 :

However, the tax administration has announced on its website that, for companies unable to gather all the documents needed to draw up their VAT return in the context of the Confinement, a reporting system based on an assessment of the tax due is being implemented.

With regard to reporting, administrative tolerances are as follows:

• * Make a simple estimate of the amount of VAT due for a month and pay a deposit corresponding to this amount the following month. The tolerated margin of error is 20%.
• * For the only companies which have experienced a fall in turnover due to the Covid-19 crisis, on an exceptional basis and for the duration of the Confinement decided by the authorities, pay a VAT lump sum down payment as follows:

• – For the April declaration in respect of March: by default, a flat rate of 80% of the amount declared in respect of February or, if you have already made a down payment the previous month, a flat rate of 80% of the amount declared in respect of January; if the activity has been closed since mid-March (total closure) or has fallen sharply (estimated at 50% or more), a flat rate of 50% of the amount declared in respect of February or, if you have already made a down payment the previous month, a flat rate of 50% of the amount declared in respect of January;
• – For the May declaration in respect of April: same arrangements as for the previous month if the Confinement period is extended and renders impossible a regularisation declaration on that date;
• – For the regularisation declaration: adjustment of the tax due based on the actual elements from the activity over the entire previous months paid in the form of down payments, mentioning also the down payments already made.