The Government’s proposal

In response to the Covid-19 outbreak the Government has presented a proposal to mitigate the current and future liquidity stress for many companies.

Deferral of payment of taxes and fees

The proposal allows companies to defer payment of

• Social Security Contributions,
• Withholding tax on employees' salaries, and
• VAT which is reported monthly or quarterly.

The deferral is allowed for three months' worth of tax payments and for a maximum period of time of 12 months. Three months’ tax payment is specified as:

• For companies that report VAT quarterly, one VAT return and three PAYE returns.
• For companies that report VAT monthly, three VAT returns and three PAYE returns.

Interest will be calculated from the day of the deferral and until full payment of the deferred amount has been made with an efficient annual interest rate of approximately 4,85 %, out of which 1,25 % constitutes the cost interest rate and 3,6 % constitutes a special deferral fee. The interest cost is not deductible for income tax purposes which makes it comparable to a deductible interest of aprox. 6.6 %.

The new rules are proposed to take effect on 7th of April 2020 but can be applied retroactively from 1 January 2020. This means that companies which have paid the above taxes and fees for January to March may have the payments temporarily refunded from the Swedish Tax Agency.

In addition to the proposal for a deferral of payment of taxes, the Government issued two more proposals to ease liquidity stress for companies.

Short-term lay-off of employees

If necessary, the State may step in and pay up to 50 % of employees' salaries for a limited amount of time. The construction is similar to short-term work, but the subsidy rate is increased.

The State takes over the sick pay liability

The state will temporarily, during April and May, take over the sick pay responsibility for all companies. In practice, this should mean that the State also takes over responsibility for the payment of sick pay for the temporarily revoked qualifying period (first day of absence). According to the proposal, the application for sick pay must be made to the Swedish Social Insurance Agency (Försäkringskassan) by the employee and thus not by the employer.

Existing opportunities to reduce liquidity stress

Adjustment of preliminary tax payments

Please note that the Government's proposal does not include deferral of the payment of preliminary tax for companies (F-tax). If it is assessed that the profit for the year will be adversely affected by the virus outbreak, all companies have the opportunity to request an adjustment to the preliminary tax payments on the grounds that the result is likely to be lower than the estimated result that the preliminary tax is based on (normally the reported result of the previous financial year). The request is made electronically or on form SKV 4313 for legal persons and SKV 4314 for sole traders and persons who are partners in partnerships.

Deferral of payment due to temporary cash flow problems

The Swedish Tax Agency has also issued a press release stating that companies that are already experiencing temporary liquidity pressures can apply for a deferral, in accordance with the already applicable grounds for deferral due temporary payment difficulties. A requirement for such a deferral is that it can be demonstrated that sufficient funds will be available to pay the tax after the deferral period has ended. No such requirement has been communicated regarding the new deferral rules proposed to apply from 7 April. You can read more about this here.

Comments

The Government's support package is welcomed and offers concrete support to Swedish companies' liquidity challenges in the coming months. However, there are some considerations before companies apply to deferral of tax payments.

The deferral is not 'free' but runs at an interest rate equal to approximately 6.6 % of deductible annual interest. In other terms it is a credit. If payment cannot be made when the deferral is finally due in one years’ time, the interest rate will rise further to approximately 16,25 %.

Nor is it clear from the Government's communique that an exception would be made with regard to the directors liability for unpaid taxes and fees in the event that the taxes and fees still cannot be paid when the period of deferral has ended. The outset is therefore, that the company's directors become personally liable for unpaid taxes and fees in the event of future bankruptcy.

The aid package is likely to be of great help for companies experiencing temporary liquidity problems but who believe in a turnaround as soon as the dust of the virus outbreak has settled. For companies that are more uncertain about the long-term effects of the virus outbreak, consideration should be given to the cost of the deferral in relation to alternative credit options, in particular with regard to the liability of the company directors.

For preTAX, it is business as usual, albeit to a greater extent through work from home. We are available for individual guidance and questions regarding the above.  

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