RESPOND: SHIELDING YOUR BUSINESS FROM COVID: BLACK SWAN OF 2020

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Unforeseeable, detrimental and hindsight bias are the three characteristics of a “Black Swan Event”, a phrase coined by former wall street trader Nassim Nicholas Taleb and very commonly used in the world of finance. Owing to the unpredictable and unprecedented disruption/ loss that the COVID 19 pandemic has caused to Governments and businesses worldwide, it certainly meets the criteria of a Black Swan Event.

But how your businesses will emerge at the end of this war in not only dependant on the legislative and economic factors but is also reliant on the responsiveness and preparedness of any organisation. Thus, it is imperative for companies to take the following steps immediately:

1. ASSESS THE CASH POSITION OF COMPANY

With the government restrictions imposed on the operations of various businesses, the old adage “cash is the king” has re-emerged. It has become all the more important to re-evaluate the cash flows and working capital needs of any business. Companies must update their cash flow forecasts to reassess their current situation. They will have to stress test such cash flow forecasts against multiple scenarios and reconsider the working capital their business requires for the weeks ahead.

2. MODEL FINACIAL IMPACT

The stress testing of cash flow forecasts and financial impact model against scenarios ranging from worst to best case scenarios will help the company understand the impact on profitability. This will further assist them in assessing whether it will be able to meet its debt covenants and determining when the available cash sources or credit facilities should be used.

3. DEFINE WHAT IS FUNDAMENTAL AND SACROSANCT

Companies will need to focus on products, services and customer segments that are core and critical to maintaining the cashflows requisite to keep businesses afloat. Further, companies should consider deferring unnecessary capital expenditures and other unwarranted spending wherever possible. While minimising such expenditures, they must follow a mean and lean culture.

4. ENGAGE WITH RELEVANT STAKEHOLDERS

Clear and transparent communications will have to be established with stakeholders like suppliers, employees, customers, regulatory authorities, creditors and investors. In circumstances where contractual obligations cannot be met due to temporary COVID 19 restrictions, companies should consider deferring payments by invoking “force majeure” clauses or re-negotiate the terms of the underlying contract with relevant stakeholders. This will help their business mitigate any future liabilities or punitive damages arising out of non-performance of contractual obligations.

5. GATHER FUNDING FIREPOWER FOR THE FORESEABLE FUTURE

By performing the above assessments and tasks, companies will be in a better position to ascertain their capital/funding needs. Based on the outcome, companies may consider alternative financing options like invoice discounting, working capital loans, factoring, trade finance, etc. This will help the company preserve its cash position and avoid unnecessary cash pressure.

6. AVAIL GOVERNMENT SUPPORT POLICIES

Companies should not hesitate to seek support of various financial and taxation related policies enacted by the Government in the wake of COVID 19. To list a few, it should consider availing supports like Temporary wage subsidy scheme (TWSS), waiver of commercial rate due to local authorities, Loan Repayment break or even applying for loans available under SBCI scheme or ISIF.

WHAT QUESTIONS DO YOU HAVE?

We are happy to help. Please contact our corporate finance department on 01 677 9000 who would be delighted to assist you. Alternatively, send us an email: info@cooneycarey.ie.

To keep in touch, connect with us on LinkedIn.

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    Posted on July 9, 2020 by Cooney Carey

    Pensions – 2020 Programme for Government

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    State Pension

    To protect the State Pension and keep it as the bedrock of the Irish pension system, it is proposed to establish a Commission on Pensions to examine the sustainability and eligibility issues with State Pensions and the Social Insurance Fund. The Commission will outline options for Government to address issues including qualifying age, contribution rates, total contributions and eligibility requirements.

    Proposals include:

    • 65 year olds who are required to or choose to retire early can receive an “Early Retirement Allowance or Pension” at the same rate as jobseekers benefit without the requirement to sign on or to be available for work
    • Pending the Commission Report, the State Pension age will remain at 66 years
    • Introduce a Total Contributions approach, aligning a person’s contributory pension more closely with the contributions they make
    • Introduce a system to enable people to defer receipt of their State Contributory Pension
    • Facilitate making PRSI payments beyond retirement age to increase underfunded pensions
    • Examine pension options for carers
    • Maintain Free Travel Scheme for those aged over 66, and extend it to all publicly licenced bus services

    Auto-enrolment Pension System

    Introduction of a pension auto-enrolment system over time, based on the following principles:

    • Matching contributions to be made by both workers and employers and the State will top up contributions
    • There will be a phased roll-out, over a decade, of the contributions made by workers
    • There will be an opt-out provision
    • Workers will have a range of retirement savings products to choose from
    • There will be a charges cap imposed on pension providers

    WHAT QUESTIONS DO YOU HAVE?

    We are happy to help. Please contact our Taxation Department on 01 677 9000 who would be delighted to assist you. Alternatively, you can send us an email: info@cooneycarey.ie.

    To keep in touch, connect with us on LinkedIn.

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      Posted on July 6, 2020 by Cooney Carey

      Taxation and the 2020 Programme for Government

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      The Programme for Government runs to 126 pages and this paper is considering the main tax references in the document.

      Income Tax and Universal Social Charge (USC)

      There will be no change to income tax credit or bands in Budget 2021. It is intended that credits and rate bands will be indexed linked to earnings from Budget 2022, finances allowing.

      The earned income tax credit (self-employed) will be equalised with the employee tax credit.

      The 3% USC surcharge applied to self-employed income will be abolished over time.

      PRSI

      Consideration is to be given to increasing all classes of PRSI over time to replenish the Social Insurance Fund to help pay for the state pension, improved short-term sick pay benefits, parental leave benefits, pay-related jobseekers benefit and treatment benefits (medical, dental, optical, hearing).

      Corporation Tax

      There is a strong commitment to retaining the 12.5% Corporation Tax rate.

      The implementation of the Roadmap on Corporation Tax Reform will continue. The Roadmap was published in September 2018 and sets out the steps required at EU level under Anti-Tax Avoidance Directives and OECD’s Base Erosion and Profit Shifting project. The key changes in the Roadmap include:

      • Controlled foreign company rules
      • General anti-abuse rules
      • Interest limitation rules
      • Anti-hybrid rules
      • Exit tax

      Small Business Taxes

      A review of CGT is proposed in each Budget over the next 5 years with the objective of supporting driven enterprises that will help with the transition to a low-carbon economy.

      The take up of R&D Tax Credit by small domestic companies will be encouraged.

      Local Property Tax (LPT)

      New legislation will be brought forward to make LPT fairer and to ensure that most homeowners will face no increase.

      New homes, which are currently exempt, will be brought into the LPT charge.

      Carbon Tax

      The Carbon Tax will increase to €100 per ton by 2030. The increase is to be achieved by an annual increase of €7.50 per annum to 2029 and €6.50 in 2023.

      Commission on Welfare and Taxation

      A Commission on Welfare and Taxation is to be established to independently consider how best the tax system can support economic activity and promote increased employment and prosperity.

      Flexible Working

      It is intended to increase remote, flexible and hub-working arrangements to support employees and enterprise. No detail is given on this.

      Other Business Supports

      • Support venture capital by ensuring a stable, long-term funding landscape
      • Support the development of sustainable plans to manage corporate and SME debt
      • Drive early relaunch of exporting efforts
      • Enhance the Strategic Banking Corporation of Ireland (SBCI) to get low cost finance to SMEs
      • Enable Credit Union movement to grow

      National Development Plan (NDP)

      The planned review of the NDP will be brought forward and an updated NDP will issue for the period to 2031.

      Conclusion

      While the Programme for Government is a long and wide-reaching document, it is light on detail.

      However, the suggestion of increases in PRSI across the board is concerning. Also, Corporation Tax Reform will in some cases drive up taxation paid by corporates with restrictions on interest deductions and transfer pricing changes likely to be the main drivers.

      The review of CGT in each of the next 5 Budgets will hopefully bring some reduction in the 33% rate, which is high by international standards.

      WHAT QUESTIONS DO YOU HAVE?

      We are happy to help. Please contact our Taxation Department on 01 677 9000 who would be delighted to assist you. Alternatively, you can send us an email: info@cooneycarey.ie.

      To keep in touch, connect with us on LinkedIn.

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        Posted on July 1, 2020 by Cooney Carey

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