1. Legislative changes: are there any additional processes or support which have been introduced as a response to the pandemic which I may not have considered previously?
The Irish government, and in particular, the Department of Business, Enterprise and Innovation (DBEI), has provided a number of supports to Irish businesses to help them stay operational and retain staff.
These supports include the following:
- A EUR180 million package available through the Sustaining Enterprise Fund (which is administered by Enterprise Ireland) for vulnerable but viable firms that need to restructure or transform their business. The scheme will provide repayable advances of up to EUR800,000 to firms with ten or more employees that operate in the manufacturing and internationally traded services sectors. Applicants must have exhausted all other financing options available to them and demonstrate they have been unable to raise sufficient funding from those sources before applying.
- A EUR450 million scheme to enable loans (up to EUR1.5m – the first EUR500,000 of which is unsecured) to be provided by the Strategic Banking Corporation of Ireland’s (SBCI) COVID-19 Working Capital Scheme at reduced rates (available to most SMEs and Small Mid-Caps that meet set criteria (including a minimum 15% drop in turnover/profitability)). The maximum interest rate will be 4%.
- A EUR200 million future-growth loan scheme run by the SBCI, that will be released in tranches, to provide longer-term loans to COVID-19-affected businesses. Loan amounts will range from EUR100,000 to a maximum of EUR3 million per applicant. Loan terms range from eight to ten years and loans of up to EUR500,000 can be unsecured. Interest-only repayments may be available at the start of the loans. The maximum interest rate will be 4.5%.
- MicroFinance Ireland will provide loans of up to EUR50,000 (applies to business with less than ten full-time employees and annual turnover of up to EUR2 million that have had 15% of actual or projected turnover or profit negatively impacted by COVID-19). The interest rates on loans available to all micro-enterprises with less than ten employees has been reduced from 7.8% to 4.5% where the application is made through the Local Enterprise Office. The new rate for direct applications to MicroFinance Ireland will also be reduced to 5.5%.
- A credit-guarantee scheme will be provided by the pillar banks to affected firms (loans of up to EUR1 million will be available). Loans can be for terms of up to seven years. The scheme provides for an 80% guarantee to participating banks.
- There are numerous other voucher and grant schemes run by Enterprise Ireland.
- Deferral of business rates.
- A wage-subsidy scheme administered by the Revenue Commissioners.
On 2 May 2020, the Irish government announced a further EUR6.5 billion suite of supports for businesses negatively affected by COVID-19. The new measures are primarily aimed at helping businesses revive operations and rehire staff in line with the Irish government’s Roadmap for Reopening Society and Business, published on 1 May 2020.
These supports include the following:
- A EUR2 billion Pandemic Stabilisation and Recovery Fund (PSRF) within the Ireland Strategic Investment Fund (ISIF), which will make capital available to medium and large enterprises. The PSRF will focus on investments in large and medium enterprises employing more than 250 employees or with annual turnover over EUR50 million. However, the ISIF may consider investing in enterprises below these levels if they are assessed to be of substantial scale and of significant importance at national or regional level.
- A EUR2 billion COVID-19 Credit Guarantee Scheme (CGS) to support lending to SMEs for terms ranging from three months to six years, which will offer below market interest rates. The CGS will provide an 80% guarantee on a wide range of lending products in amounts between EUR10,000 and EUR1 million that have a maximum term of six years or less.
- The “warehousing” of tax liabilities for a period of 12 months after recommencement of trading, during which there will be no debt enforcement action taken by Revenue.
- A Restart Fund of EUR250 million will be created for micro- and small enterprises to help them reconnect with the market, their employees and their customers. The fund will provide up to EUR10,000 restart grants for micro- and small businesses based on a rates/waiver rebate from 2019.
- A three-month commercial rates waiver for affected businesses.
2. Is there anything else I should look out for?
As the COVID-19 situation continues to rapidly evolve, different countries are taking unprecedented measures to try to manage the economic impact. Other EU countries (such as Spain, Germany and the UK) have taken steps yet to be adopted in Ireland, including enacting legislation to suspend directors’ duties in relation to the filing for insolvency (where the insolvency can be linked to circumstances brought about by the pandemic) and announcing a blanket moratorium on all loan payments.
It is arguable whether similar measures will eventually be considered in Ireland to deal with the unprecedented challenges presented by the crisis and to mitigate the likely economic fallout. However, legislators, regulators and industry stakeholders will all have to work together to navigate the issues as they arise.
3. What is the position with respect to the applicability of emergency tax measures , including
a. what they are and apply to;
b. when they are expected to be phased out on or following a return to business; and
c. whether any transitional periods are likely to apply.
The following are some of the emergency tax-related measures adopted so far in Ireland in response to COVID-19:
The Temporary COVID-19 Wage Subsidy Scheme (TWSS)
The TWSS aims to encourage employers to keep their staff in employment. It is not strictly a tax measure, but is operated by the Revenue. Under the TWSS, eligible employees whose employers have been adversely affected by COVID-19 could receive up to 85% of their wages from the state. Employers who use the TWSS are encouraged to use their best efforts to top up their employees’ wages above the subsidy received under the scheme. The employer’s PRSI on any top-up payments is reduced from 11.05% to 0.5%. The scheme is expected to last for 12 weeks from 26 March 2020.
The scheme was amended with effect from 4 May 2020 and the payments eligible employees could receive are as follows:
- For employees with net pay less than EUR586 per week (EUR38,000 per year) with previous average net pay:
- up to EUR412 per week (equivalent to almost EUR24,400 per year), the subsidy will be increased from 70% to 85% of their previous net weekly pay; and
- between EUR412 and EUR500 per week (equivalent to EUR24,400 to EUR31,000 per year), the subsidy will be up to EUR350 per week.
- Where an employer wishes to pay a greater level of top-up – above the outstanding 15% of previous pay (for employees with net pay less than EUR412 per week) – in order to bring the employee’s pay to EUR350 per week, then tapering would not be applied to the subsidy.
- For employees with previous net pay in excess of EUR586 per week(equivalent to EUR38,000 per year), a tiered approach will apply, but the maximum subsidy payable remains EUR350 per week. The tiered approach takes into account both the amount paid by the employer and the level of reduction in pay borne by that employee to ensure no employee would be better off under the scheme.
- Employees whose average net pre-COVID-19 salary was greater than EUR76,000 per year and whose gross post-COVID-19 salary has fallen below EUR76,000, who could not avail of the scheme initially, now may receive payments under the scheme. The tiered arrangement applicable to gross incomes in excess of EUR38,000 per year applies in such circumstances.
Tax payments and refunds
The Irish Revenue has stated that they will facilitate a number of measures:
- The Revenue will prioritise the processing of refunds (primarily VAT repayments and professional services withholding tax (PSWT) refunds) due to taxpayers.
- The Revenue will expedite the payment of any instalment of excess R&D tax credit that is due to be paid in 2020. Taxpayers due R&D tax credit instalments in 2020 should request that Revenue expedite these.
- The application of interest on late tax payments is suspended for SMEs (defined as a business with turnover of less than EUR3 million that is not dealt with by either Revenue's Large Cases Division or Medium Enterprises Division) for the January/February 2020 and March/April 2020 VAT periods and for the February 2020, March 2020 and April 2020 PAYE (employers) periods. These measures have been extended for the VAT period May/June and for May 2020 and June 2020 PAYE periods.
Tax returns and tax compliance
The following tax measures were introduced in respect of SMEs (defined as a business with turnover of less than EUR3 million that is not dealt with by either Revenue's Large Cases Division or Medium Enterprises Division):
- No interest on late payments of VAT and PAYE (as set out above).
- Businesses experiencing temporary cashflow difficulties should continue to file tax returns on time (even where payment is not immediately possible).
- All Revenue debt-enforcement activity is suspended until further notice.
The 90-day employer filing obligation, which is a requirement for an employee to be eligible to benefit from the Special Assignee Relief Programme (SARP) relief, is extended for a further 60 days.
The Revenue will not seek to enforce Irish payroll obligations for foreign employers in genuine cases where an employee was working abroad for a foreign entity before COVID-19 but relocates temporarily to Ireland during the COVID-19 period and performs duties for their foreign employer while in Ireland.
The Revenue has stated that where an individual is present in Ireland because of travel restrictions related to COVID-19, it will be prepared to disregard such presence in Ireland for corporation tax purposes for a company in relation to which the individual is an employee, director, service provider or agent.
Surcharges apply to income of closed companies that is not distributed within 18 months from the end of the accounting period in which the income arose. In cases where a distribution is not made within that time in response to COVID-19 circumstances affecting the company, the Revenue confirmed it will, on application, extend the 18-month period for distributions by a further nine months.
VAT and customs duty
Further measures include:
- Zero rate of VAT applies temporarily to the supply to the HSE, hospitals and other healthcare settings of personal protection and specified medical equipment for use in the treatment of patients with COVID-19.
- In respect of the import of medical devices and protective equipment from outside the EU to combat the effects of COVID-19, no customs duties and VAT are applicable from 30 January 2020 to 31 July 2020 under Commission Decision of 3 April 2020 (C (2020) 2146).
There is currently limited information on how long the COVID-19-related tax measures apply. Some of the measures have been introduced for a prescribed period, but could be extended. For example, the TWSS was originally intended to last for 12 weeks from 26 March 2020. However, the Irish government has already indicated that the TWSS scheme may be extended and possibly phased out after mid-June, though the scheme is unlikely to be in place in the long term.
VAT and PAYE warehousing
On 7 May 2020, the Revenue announced a new scheme to support businesses affected by COVID-19. Under the scheme, the collection of unpaid VAT and PAYE liability (e.g. income tax, universal social charge and employees and employers PRSI) for the period from 1 March 2020 until the specific sectorial restrictions are lifted would be deferred for a period of 12 months after the business resumes “normal” trading. No interest for late payment would apply to the deferred tax liability during the 12-month period. Further details of the scheme are expected in due course.
In order to use the scheme, the tax debt will have to be quantified by the business through the filing of all relevant returns for the restricted trading phase. If a best-estimate return of liability has been made for any period, the correct return must be filed to ensure the debt benefits from the warehousing.
As the situation with COVID-19 is constantly evolving, changes and extensions of the measures could happen at any time.
Measures that involve payments made by the Irish state are likely to be phased out instead of being ceased outright. Other measures such as Revenue concessions are more likely to be discontinued outright.
4. Are there specific steps that businesses should take to prepare for these tax measures being phased out – for example new timing of
a. payment obligations (and therefore likely pressure on cash flow); and/or
b. filing of returns?
Businesses should keep up to date with any changes to the current tax measures and the introduction of any new measures. The sudden discontinuance of certain measures, such as the TWSS scheme, could have a serious negative effect on businesses and could lead to business closures or large-scale redundancies.
Businesses that expect to have cashflow difficulties that could affect their ability to pay their taxes should engage with the Revenue as early as possible. For example, instalment payment plans could be negotiated with the Revenue.
The Revenue has emphasised in its communications on COVID-19 measures that even if taxpayers are not able to pay their tax liabilities in full, they should still prepare and file their tax returns within the prescribed deadlines.
5. Should the impact of emergency tax measures be reconsidered by businesses – e.g. are there certain legal transactions (such as sales or reorganisations) that parties should preferably postpone or accelerate?
The two main priorities of businesses during COVID-19 should be the preservation of liquidity and the management of solvency risks. Depending on the nature and corporate structure of the business, certain reorganisations may need to be accelerated to increase liquidity and reduce losses, while other reorganisations may need to be postponed in the short to medium term. To facilitate this, every business should carry out an impact review of COVID-19 and evaluate the potential future effects from a tax perspective.
6. Are there any additional measures proposed, in particular any that are targeted at particular sectors (e.g. aviation)?
Additional measures targeted at the sectors most affected by COVID-19 are under consideration. In Ireland, specific measures targeted at supporting the tourism and hospitality sectors as well as the aviation sector are under review, but no details of such measures have been officially communicated to date. However, some of the measures may include the following:
- Application of 0% VAT rate on all sales of certain businesses most affected by the lockdown for the first month or so of them reopening – for example, restaurants, cafes, bars and retail.
- Application of a reduced VAT rate of 9% on certain tourist and hospitality services for a limited period until their recovery.
7. Are there any sectors or interest groups that are now putting forward, or may in the near future request, special tax measures?
The hospitality sector, the tourism sector and the aviation sector are expected to put forward requests for special tax measures to support them in recovering from the impact of COVID-19. The potential measures include changes to the VAT rate that applies to the supply of their goods and services, deferral of tax liability, and exemption from local authority rates and other industry-specific taxes.
8. Which taxes might be increased to address the financial burden caused by the crisis, for example,
a. are there political commitments or policy trends that might indicate the likely focus of any tax increase in the future (e.g. to maintain low corporation tax, but to increases taxes on personal wealth)
b. measures to broaden the tax base, such as digital services taxation and a pre-emptive response to the OECD/ G20 Inclusive Framework on BEPS (BEPS 2.0)
It is difficult to predict which tax measures the Irish government may introduce to mitigate the increased national spending and financial burden imposed by COVID-19. Ireland has consistently committed to maintaining autonomy over its corporate tax regime, particularly its corporation tax rate of 12.5% for trading profits. Potential taxation measures that the Irish government may seek to alter are:
- VAT rates;
- capital acquisition tax rates and thresholds; and
- capital gains tax rates.
At present, Ireland is unlikely to agree to adopt the digital services tax base measures proposed at OECD level.
9. Are there other actions that ought to be considered by businesses in your country e.g.
a. revisit past tax filings to claim carry back of losses;
b. revise or update preliminary tax assessments;
c. claim bad debt relief for VAT output tax
Businesses could increase their liquidity by doing the following:
- If the business is engaged in the supply of goods and services subject to VAT and goods and services not subject to VAT, a VAT apportionment review should be carried out. If a more precise VAT apportionment method is used, it could be possible to increase the VAT recoverability of the business.
- If the turnover of the business has significantly decreased, the business should consider applying to account for VAT on a cash receipts basis. This means the business will be liable to pay VAT to the Revenue not on the basis of the issue of an invoice, but on the actual payment of an invoice.
- If there are any long outstanding debts due to the business, it could, subject to careful consideration, write off such debts. The business should be entitled to reclaim the VAT and corporation tax already paid to the Revenue in respect of the written-off debts.
- If the business incurs a loss it could look to carry that back to the previous year and claim a tax refund. A company that ceases to trade may be able to carry back losses to the three previous years.
- If a company was considering a reorganisation of its supply chain or IP holding, it may be favourable to carry out such a reorganisation when asset values have depreciated, as a capital gain may not arise or alternatively it may be reduced.
- Companies should review their transfer-pricing policies and consider if they are fit for purpose in the current economic climate. For example, there may be justifications for altering the price paid due to COVID-19.
10. What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government?
If your business has temporarily closed, there will in a number of cases be a delay between the incurrence of costs to restart your business and the consequent receipt of income. Consider how you will finance that gap. In particular, if you have any remaining availability under any revolving credit facility, note that there will likely be a drawstop on new funding if a default (or occasionally event of default) is continuing.
Please refer to the first question in this section above for more details on the support packages available. The support packages outlined are subject to availability and dependent on the satisfaction of eligibility criteria. In addition to any applicable application closing dates, it is expected that these supports will generally be made available on a first-come, first-served basis until the schemes become fully subscribed.
11. How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?
If your business has been temporarily closed, you should consider the effect this will have on the ability of your business to comply with any maintenance financial covenants in your loan agreement. In a number of cases, lenders in the market were receptive to a covenant waiver for the March testing date. Generally, such measures allow for a waiver of the requirement to adhere to relevant covenants in the underlying finance documents (and are typically tested quarterly). Consider whether a waiver, or indeed full covenant reset, will be needed for future test dates – and then also consider when would be an appropriate time to try to determine what those reset covenants should be.
Particular considerations include:
- whether future financial covenant tests will be reset and how these might be calculated;
- whether a waiver, or indeed full covenant reset, will be needed for future test dates – and then also consider when would be an appropriate time to try to determine what those reset covenants should be;
- the decrease in turnover/EBITDA over the lockdown period;
- any likely tapered increase in revenue/EBITDA as lockdown restrictions are relaxed;
- costs for restarting the business;
- payment of any deferred payments (i.e. rental payments, business rates, payments to the Revenue Commissioners); and
- whether business-continuity insurance is applicable.
Funding the return to business may necessitate amendments to financial covenants to reflect revised performance expectations, or amendments to particular definitions in financial covenants to carve out specific events relating to a return to business. Consider such matters on a case-by-case basis and by reference to the factors affecting the relevant business. In general, lenders are likely to consider the factors set out in the response to 14 below before agreeing to any such amendments.
12. Are there any remedies such as equity cure or margin ratchets that you should be checking on to provide liquidity to prevent a default or improve their financial position?
In some circumstances, it may not be possible to agree a waiver or amendment to your maintenance financial covenants, so it would be prudent now to review your credit/loan agreement for:
- cure rights; and
- an “equity cure” (where the sponsor/shareholder of the borrower injects new capital by way of equity or subordinated debt).
There will usually be a maximum number of cures that can be applied in a given period, or lender consent may be required.
Given the negative financial impact the current circumstances may have on the financial condition of certain borrowers, if the margin a borrower pays is subject to a ratchet, it will likely increase as such borrower’s financial condition deteriorates (e.g. as leverage increases). Further, if a ratchet applies, the margin will usually be set at the highest level if an “event of default” is continuing.
The amount of any margin adjustment may not be significant, particularly in relation to a revolving credit facility that is unlikely to be fully drawn at all times. However, consider whether repayment of the increased margin is viable on an ongoing basis. If it isn’t considered viable, then you may need to enter into discussions with your lender about an amendment/waiver.
13. What practicalities do you need to consider in relation to audit requirements?
Consider the deadlines to deliver your audited financial statements to your lenders and the practicalities of your auditors being able to carry out their audit.
You must consider whether there will be sufficient time to allow the auditors to gather all of the information, appropriate evidence and finalise their report before the deadline.
A directors’ report, which includes a description of the principal risks and uncertainties relating to the business, must accompany the financial statements in Ireland. This report will likely now need to include principal risks and uncertainties related to the COVID-19 outbreak. Auditors must carefully consider the consistency of this information with that contained in the financial statements. There may also be a need to modify the auditor report as follows:
- Regarding audits that were underway before the COVID-19 pandemic, which auditors may need to revisit to consider their risk assessment and any associated responses to that assessed risk.
- Where stock is material to the financial statements, the auditor is required to obtain sufficient appropriate audit evidence regarding existence of stock. The measures in response to the pandemic will have affected stocktakes undertaken by auditors.
If issues arise, one option to consider is extending the accounting period in accordance with Section 288 of the Companies Act 2014
A number of credit agreements will include an “event of default” that will arise if the auditors qualify their report in respect of your annual financial statements. Consider in particular the auditor's assessment of going concern, both in the context of increased economic uncertainty and also the ability of your business to comply with any maintenance financial covenants.
14. What is the process if I need any amendments made or waivers given under my loan documentation (including in respect of financial covenants)?
You will need to consider what proportion of your lenders need to consent to the requested amendment or waiver – i.e. all lenders, super majority lenders (typically 80%-90%), and majority lenders (typically 66.6%). For example, for a super senior revolving credit facility (SSRCF), unitranche or first-out and last-out unitranche structure (FOLO), it will be necessary to consider whether you also need all/majority super senior lender consent. Generally, unitranche deals are a type of debt financing provided by non-bank lenders (usually a facility of less than EUR450 million that combines senior and junior tranches in a single financing).
Amendments to financial covenants generally require majority lender consent and, on SSRCF/unitranche or FOLO deals, the consent of majority super senior lenders to the extent the amendment relates to a super senior covenant.
As a practical point, in our experience, lenders tend to be more receptive to requests for amendments and waivers if a borrower presents to them well thought-out and reasoned plans to address any issues in the business (i.e. solutions, not just problems).
Lenders are likely to consider the following factors:
- What is driving the requesting for requesting the amendment or waiver? Is the request stemming wholly as a result of COVID-19-related matters, or are there other underlying strains on the business?
- What other measures are being implemented to protect its business in addition to the amendment or waiver sought?
- What is the nature of the debt request (overdraft, revolving credit facility or term loan) and what conditions need to apply to the additional debt? How long will the debt be made available for and how is it to be priced?
15. Dealing with creditors, including amendments and waivers – Bonds
a. If I can’t comply with the terms of my bond covenants who do I need to notify?
The structure and terms of bond issues can vary considerably depending on a number of factors, including whether the bonds are listed (and, if so, on what market), rated or not; and whether the bonds have been sold to retail or professional investors.
In general, the bond documents will contain a requirement for the issuer to notify bondholders and the trustee in circumstances where an “event of default” has occurred. If the bonds are listed, there may also be requirements to make public announcements in accordance with EU regulations (e.g. the Market Abuse Regulation) and/or applicable listing rules. Typical events of default that may be relevant in the COVID-19 situation include non-payment, insolvency, financial covenant breach and potentially “material adverse effect.” Grace periods or materiality thresholds may apply in some cases. If you can’t comply with the terms of your bond, you may also need to consider rating implications and requirements to assess or redress potential rating downgrades.
Most high-yield eurobonds do not have financial covenants, material-adverse-effect defaults or cross-defaults to other indebtedness (in the latter case, unless and until there has been an acceleration of the other indebtedness above a threshold amount). Investment-grade bonds, and other bonds that are not high-yield bonds, may include material-adverse-effect, change-of-control and cross-default provisions.
Key default concerns in the near term for bonds, whether they are investment grade, high yield or other bonds that are not high-yield bonds, are likely to be:
- inability to file necessary reports (which may include accounting certifications which may not be made);
- failure to report timely any material developments (if the bond documentation requires such reporting); and
- inability to pay interest or principal.
b. If I need to ask for a waiver or amendment to the terms of bonds issued by my business what steps do I need to take?
The steps to be taken will be governed by the requirements of the underlying bond documentation and any applicable EU and/or stock exchange regulations regarding, among other things, notifications to bondholders/the market generally.
It should be expected that consent from bondholders representing a majority of principal amount outstanding will be required for amendments to non-economic terms (such as ability to incur additional debt), but that economic terms (e.g. maturity, interest rate, interest payment dates, currency) will require 90% to 100%, depending on bond documentation. Changes to collateral security arrangements may also require super majority consent. The relevant thresholds for bondholder consent will be contained in the trust deed or the indenture of the bonds.
In general, the issuer will request the consent of bondholders to amend the terms of the bonds through a consent solicitation. The consent solicitation will set out the scope of any requested amendments/waivers, as well as the rationale for the proposed changes. Any waiver/amendment will be made in accordance with the terms of the bonds (e.g. by way of bondholder meeting or written resolution). When the requisite majority of bondholders have approved, all bondholders are bound – which means, for certain types of amendments, a relatively small number of bondholders may impose changes on all other bondholders.
The issuer should consider engaging legal counsel at an early stage to prepare the necessary documentation, determine the mechanics for obtaining approvals, consider issues relating to securities laws and regulations (including the need for public communications), and liaise with the trustee (as required).
c. What is the process for contacting bondholders and holding meetings to agree changes in the terms of my bond documents?
The process for contacting bondholders will be specified in the underlying bond documents. The issuer or its legal advisors will need to review the documents (as well as the rules of any relevant clearing system and local statutory provisions) in order to ensure compliance. Typically, the trustee will assist the issuer in setting up any required meetings, though if the bonds are listed, market notifications may also be used.
Often, bonds are held in electronic form via the clearing systems and usually through a custodian who holds the beneficial interest for these bonds on behalf of the end investors. The bonds are also freely traded in the over-the-counter (OTC) market. As such, issuers of listed and cleared eurobonds do not generally know who their holders are. To obtain bondholder consent to an amendment, a consent solicitation process will be required. Meetings will generally be held in accordance with the bond terms and the consent solicitation will specify the timing, location and voting instructions for such meetings.
An issuer will typically enlist the aid of a financial advisor and information agent to run a disciplined written consent process via the trustee or fiscal agent.
16. Is the availability of any return to business funding or relief either (a) conditioned on the use of proceeds for green or social purposes or (b) linked to sustainability-related outcomes? If so, what are the applicable purposes or outcomes?
Although there have been various positive developments relating to green finance over the past few years in Ireland (for example, Ireland is one of several jurisdictions to have issued a green bond in line with the International Capital Market Association Green Bond Principles), the Irish government has not, to date, announced or indicated that any of the funding packages or reliefs being made available are conditional on green targets or sustainability-related outcomes.