Tax Talks

The Proskauer Tax Blog

Coronavirus: President Trump Signs the CARES Act; Summary of the Tax Provisions of the Act

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (H.R. 748).  This blog post summarizes the tax provisions of the CARES Act, and has been updated to reflect subsequent guidance from the Internal Revenue Service (“IRS”) on these provisions, and the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010).

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IRS Issues Guidance on COVID-19-Related Tax Credits Available to Employers Under the FFCRA

On April 1, 2020, the Internal Revenue Service (“IRS”) posted on its website a series of frequently asked questions (“FAQs”) that explain the COVID-19-related tax credits available to small and midsize employers who are required to provide paid leave under the Families First Coronavirus Response Act (the “FFCRA”), which was signed into law by President Trump on March 18, 2020.  This blog summarizes some of the key items addressed by the FAQs, including which employers are eligible for these credits, and the requirements and documentation necessary for claiming the credits.

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COVID-19: interim measures on stamp duty announced by HMRC

In response to the COVID-19 crisis HMRC has updated its guidance on the process for getting documents stamped and paying the stamp duty, including that:

  • Stock transfer forms should not be posted to the Stamp Office. Instead an electronic copy (which can be a scanned PDF) should be emailed to HMRC at stampdutymailbox@hmrc.gov.uk. The form should be fully completed, signed and dated. For these purposes HMRC will accept e-signatures. (https://www.gov.uk/guidance/pay-stamp-duty)
  • Where instruments have already been posted a notification letter should be resubmitted electronically giving details of payments made in respect of the transaction.
  • HMRC will not physically stamp transfer documents. Instead it will send an email with a letter that will (a) confirm receipt of the payment of the stamp duty, (b) detail the transaction(s) that it is confirming receipt for and the reference codes and (c) give assurance that HMRC will not pursue a penalty against the registrar for registering the new ownership of the shares based on the documents supplied by HMRC. This confirmation from HMRC should be sent to the registrar (along with the stock transfer form and share certificate).
  • Claims for relief from stamp duty should be made by emailing HMRC at the email address set out above, identifying the type of relief sought (including intragroup, acquisition and reconstruction relief) and explaining why the relief is being claimed. Electronic versions of the relevant documents should be included and HMRC will accept documents singed electronically. To minimise file sizes HMRC will only require a list of shareholders and the shares they hold (including class of shares) for each company rather than full copies of full registers of members. If HMRC confirms that relief is due it will send an email with a letter (a) detailing the transaction(s) it is confirming relief for and the reference codes and (b) give assurance that it will not pursue a penalty against the registrar for registering the new ownership of the shares. This should be sent to the registrar (alongside the stock transfer form and share certificate). (https://www.gov.uk/guidance/stamp-duty-reliefs-and-exemptions-on-paper-shares)
  • Formal and informal opinions from HMRC regarding the amount of stamp payable or reliefs claimed should be sought by emailing HMRC with relevant details and electronic copies of relevant documents. (https://www.gov.uk/guidance/stamp-duty-getting-an-opinion-about-a-payment-or-penalty)
  • Applications for confirmation from HMRC of whether a court order sanctioning a scheme of arrangement transfer will be subject to stamp duty should be sent by email to the above address, including a copy of the scheme particulars or proposed scheme document, together with a copy of the draft court order to sanction the scheme. (https://www.gov.uk/government/publications/stamp-duty-and-stamp-duty-reserve-tax-transfer-schemes-of-arrangement)

Please contact any member of our UK tax group if you have any queries or require assistance in applying the above measures.

COVID-19: HMRC Announces its Approach to Company Residence

There has been considerable discussion about the effect that the travel restrictions resulting from the COVID-19 pandemic might have on the tax residence of companies, particularly where directors are stuck in a different jurisdiction and cannot attend board meetings as they would in normal circumstances.

On 7 April, HMRC updated its published guidance to discuss this concern (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm120185). As discussed in our recent Tax Talks (COVID-19: UK Tax Residence for Companies and Individuals), a company will be tax resident in the UK if it is either incorporated in the UK or centrally managed and controlled in the UK. In that blog we discussed this risk that, if directors of non-UK resident companies who are presently located in the UK and are unable to leave the country because of COVID-19 and associated travel restrictions are making decisions from the UK, the company could become UK tax resident under the “central management and control” test.

HMRC’s statement does not lay down any specific change of approach to the issue of company residence with HMRC considering that the existing guidance and legislation provides sufficient flexibility to deal with companies adjusting their business activities in response to the virus. For companies affected, HMRC’s statement that it is “very sympathetic to the disruption that is being endured” will provide some comfort and suggests that HMRC will take a pragmatic approach to corporate residence in the current circumstances.

As we described in the Tax Talks mentioned above, we consider that what is important for the company residence test is the pattern of decision taking over the life of the company and the relative importance of the decisions taken, so management should think carefully about what the board is discussing in any particular meeting and potentially manage the board meeting procedure accordingly. Short term decisions taken in the UK are, therefore, unlikely to lead to a company becoming UK tax resident under the “central management and control” test. This is supported by HMRC’s statement that it does not consider that a company will necessarily become UK resident where a few board meetings are held in the UK or there is participation in overseas board meetings from the UK “or because some decisions are taken in the UK over a short period of time”.

HMRC has adopted a similar approach in respect of permanent establishments.

In addition, the OECD has published an Analysis of Tax Treaties and the Impact of the COVID-19 Crisis (https://read.oecd-ilibrary.org/view/?ref=127_127237-vsdagpp2t3&title=OECD-Secretariat-analysis-of-tax-treaties-and-the-impact-of-the-COVID-19-Crisis) considering the implications of the disruption to tax residence and associated tie breakers, permanent establishments and employee tax concerns among other things. While emphasising that there may well be specific local law issues to consider (such as state taxes), the OECD’s general approach is that the temporary and extraordinary changes to business operations caused by the crisis are unlikely to adversely affect multinational tax analyses because they will lack the necessary aspects of permanence, habituality, employer control and other factors that are relevant to the tax concepts at the heart of tax residence and tax treaty terms.

So, while the current circumstances do raise issues that are worthy of proper consideration, the guidance from HMRC and the OECD does, in our view, give considerable comfort that businesses should not be penalised as a result of carrying on their operations and top level management activities in the most practicable manner possible. Of course, if the current disruption continues for a significant time this will warrant further consideration.

Please contact any member of our UK Tax group if you have any queries about how any of the above or how the current COVID-19 related disruption might affect your business.

The FFCRA and CARES Act: Key Provisions Affecting Nonprofit Organizations

On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (“FFCRA”) (H.R. 6201), and on March 27, 2020, he signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (H.R. 748). This alert summarizes certain loan and tax-related provisions of these new laws that are most relevant to nonprofit organizations.

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The CARES Act and Compensation – What Employers Need to Know

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (H.R. 748).

In this blog post we (1) lay out an initial action plan for employers considering obtaining relief under the CARES Act, (2) summarize the compensation-related provisions of the CARES Act, and (3) identify the key questions that the CARES Act leaves unanswered.

CARES Act – An Employer Action Plan to Comply with Compensation-Related Provisions

Any employer considering obtaining loans, loan guarantees or payroll assistance under the CARES Act should:

  • Review the CARES Act compensation-related provisions and workforce maintenance requirements, which are summarized in further detail in the next section.
  • Identify affected officers and employees and compensation arrangements (for those employers accepting loans, loan guarantees or other relief).
    • Identify all officers and employees with total compensation in excess of $425,000 for calendar year 2019 (an “Applicable Employee”).
    • Identify all Applicable Employees with total compensation in excess of $3 million in calendar year 2019.
    • Identify last-12-months’ compensation levels for all Applicable Employees as of latest practicable date (the “LTM Compensation”).
    • Identify and review all compensation arrangements between the business and each Applicable Employee, focusing on: (1) dollar amounts; (2) guaranteed increases / guaranteed compensation; and (3) amendment and termination provisions.
    • For purposes of provisions requiring workforce and compensation/benefits maintenance, identify workforce and compensation and benefits levels as of relevant dates.
    • Identify and review collective bargaining agreements (if any).
  • Act to comply with the CARES Act compensation provisions (once the loan or loan guarantee has been executed or other relief has been received).
    • Mobilize resources to track ongoing compliance (e.g., GC / Deputy GC; CHRO or HR team leaders; stock plan administrators; benefits administrators).
    • Establish administrative framework to track compensation on a rolling 12-month basis and to track benefit levels.
    • If current LTM Compensation for any Applicable Employee exceeds maximum levels, amend any applicable agreements, plans, programs or policies to implement required reductions and obtain any required consents from any such Applicable Employee.
    • For all other plans, programs or policies between the business and an Applicable Employee, amend to include prospective cutback provisions, as needed.
    • For all new agreements with Applicable Employees, include savings language that would allow changes to compensation as may be required to comply with federal requirements without triggering any rights for the Applicable Employee (e.g., severance rights upon a “good reason” termination or breach of any such agreement).
    • Restore workforce and compensation / benefits levels as necessary to comply with workforce maintenance requirements as described below.

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