Up Again: Government relief and tax

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.

Income tax

Payment of pay roll taxes (withholding taxes) on salaries is postponed by 5 months for the months April, May and June; i.e. the withholding tax for April usually due in May is now due in September etc.

Self-employed individuals may postpone their payment of on-account-taxes for April to June and for May to December.

Individuals may at any time adjust the preassessment of the expected income for the year and thus adjust (lower) their advance payments of on-account taxes.

VAT: VAT return and payment deadlines have been extended.

For large businesses, the deadlines for the second quarter of 2020 have been extended by one month.

For medium-sized businesses, the deadlines have been extended by three months for the first quarter of 2020 and for small businesses by six months for the first half of 2020.

The deadlines for reporting EU sales exclusive of VAT have not been extended. The same applies to the VAT One Stop Shop filing deadlines.

Furthermore, small and medium-sized businesses may apply for an interest-free VAT loan of an amount equivalent to the declared VAT for the last VAT period of 2019.

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 will need to be careful on liquidity; in September, in addition to paying the withholding tax on April’s salaries they will also have to pay the withholding tax on August’s salaries.

Small and medium-sized businesses will have to file VAT returns and pay VAT for two VAT periods at the same time, i.e. their liquidity may be strained at the time for the actual filing and payment of VAT.

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”)

There do not seem to be any new or higher taxes in the pipeline due to the corona situation.

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

If businesses’ costs spent on R&D lead to a loss, the tax value (tax credit) of the loss may be refunded directly to the business instead of the loss being carried forward. The processing of the return payment has been brought forward, so return payment on losses suffered in 2019 can be made already in June 2020 (instead of November).

Claim for bad debt relief for VAT output tax is always advisable.

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?

No legislative changes have been made specifically within restructuring.

However, government assistance packages have been introduced:

Overhead expenses

The government will cover some or all of the overhead expenses (such as rent, interests leasing fees, etc.) of businesses under certain conditions. The compensation will cover between 25-100% of the businesses’ overhead expenses, depending on the decrease of turnover of each business. The decrease of turnover has to be at least 40% for a business to be eligible.

If a business is closed by order of the government, the compensation will be 100%.

The compensation is capped at DKK 110 million per business and covers the overhead expenses from 9 March 2020 until 8 July 2020.

If a business seeks to get compensation that exceeds DKK 60 million, the business has to declare that no dividend will be payed to the owners in 2020 and 2021.

Compensation for self-employed and freelance employed

Owners of businesses with a maximum of 25 full-time employees have the opportunity to receive compensation if their turnover decreases by at least 30%.

The compensation will cover up to 90% of the expected turnover decrease, compared to the average turnover appearing in the three latest annual reports.

The compensation is capped at DKK 23,000 per business per month from 9 March 2020 until 8 July 2020.

Additional financial support

Private-sector businesses registered in the Danish Central Business Register and faced with having to give notice of dismissal to at least 30% of their staff or more than 50 employees due to COVID-19 can instead lay off their employees with full salary/wage for a period of time and obtain salary/wage compensation from the Danish State.

The conditions are that (i) the relevant individual employee must take five days of holiday or leave in lieu during the compensation period; (ii) the business does not opt for any existing scheme for lay-offs without salary/wage; (iii) the business does not obtain cover for the same costs under any other relief package; and (iv) the employer must pay the employee’s agreed salary/wage during the lay-off period.

The salary compensation for a full-time salaried employee will amount to 75% of the employee’s monthly gross salary (up to a maximum of DKK 30,000 per month). For non-salaried employees, the compensation may amount to up to 90% (up to a maximum of DKK 30,000 per month).

New rules in the bank sector

As a result of COVID-19, the countercyclical capital buffer has been released. This has given the banks improved lending opportunities to companies with loss of turnover. Therefore, it could be a possibility to contact your bank to negotiate better loan terms.

Furthermore, there has been issued a new guarantee scheme for large and small/medium-sized companies who have – or expect to have a minimum loss of turnover af 30% because of the COVID-19 pandemic. The guarantee scheme enables the Danish State’s investment fund, Vaekstfonden, to provide a guarantee for up to 70% of the single loans granted by banks, leasing companies etc. if the lender makes an application. This gives you a possibility to improve the liquidity of your company by negotiating your loan terms with your lender if you meet the requirements of the guarantee scheme.

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 several 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 draw-stop on new funding if a Default (or occasionally Event of Default) is continuing.

The Danish government has introduced a number of assistance packages to help corporates and smaller businesses. DLA Piper Denmark has produced an overview of all the assistance packages and which businesses are eligible here.

How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?

Before considering funding a return to business by incurring additional indebtedness, it is recommended to review your credit agreement to make sure that you have an overview of the applicable undertakings and covenants, and further, to reach out to your lenders in due time to discuss and negotiate your current situation. It might be that the leverage of your existing finance is maxed out and, thus, any additional indebtedness incurred will trigger an Event of Default. Further, if the margin is subject to a ratchet, this will likely increase.

If additional indebtedness is required, consider whether a waiver, or indeed full covenant re-set, will be needed for future test dates (and then also consider when would be an appropriate time to try to determine what those re-set covenants should be) and whether the additional funding can be financed under your existing facility agreements.

Particular considerations include (i) the decrease in revenue/EBITDA over the lockdown period, (ii) costs for restarting the business and (iii) payment of any deferred payments (i.e. rental payments, business rates, tax and/or VAT).

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 on a waiver or amendment to your maintenance financial covenants, so it may be prudent now to review any equity cure rights in your credit agreement. Further, given the negative impact on financial condition on a number of businesses, if the margin that you pay is subject to a ratchet it will likely increase as the financial condition deteriorates (e.g. as leverage increases) and the margin is usually set at the highest level if an Event of Default is continuing.

In general, it is recommended to review your credit agreement to make sure that you have an overview of the applicable undertakings and covenants, and further, to reach out to your lenders in due time to discuss and negotiate your current situation. The Danish government has, generally, encouraged Danish financial institutions to demonstrate flexibility when negotiating solutions with borrowers affected by COVID-19.

DLA Piper Denmark has published both a podcast (in Danish) and a newsletter, which cover this subject, "COVID-19: How it may affect your loan and finance agreements". Link here.

What practicalities do you need to consider in relation to audit requirements?

Consider the deadlines to deliver to your lenders your audited financial statements and the practicalities of your auditors being able to carry out their audit. Will there be sufficient time and access to allow the auditors to gather sufficient, appropriate evidence and finalise their report before the deadline?

Further, as a part of the Danish relief packages, certain filing deadlines for Danish companies submitting annual reports to the Danish Business Authority have been postponed in order to address this issue. However, it should be made sure that any reporting obligations agreed with your lenders are also complied with or postponed, if possible. In general, it is recommended to review your credit agreement to make sure that you have an overview of the applicable undertakings and covenants, and further, to reach out to your lenders in due time to discuss and negotiate your current situation.

DLA Piper Denmark has published both a podcast (in Danish) and a newsletter, which cover this subject, "COVID-19: How it may affect your loan and finance agreements". Link here.

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 how many of your lenders need to consent to the requested amendment or waiver. Amendments to financial covenants generally require consent of majority lenders (typically 662/3%).

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, supported by appropriate evidence/forecasts.

In general, it is recommended to review your credit agreement to make sure that you have an overview of the applicable undertakings and covenants, and further, to reach out to your lenders in due time to discuss and negotiate your current situation.

DLA Piper Denmark has published both a podcast (in Danish) and a newsletter, which cover this subject, "COVID-19: How it may affect your loan and finance agreements". Link here.

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?

This depends on the terms and conditions of the bonds. Typically, there will be an obligation by the issuer in the terms and conditions to notify the trustee/agent under the bonds (with a copy to the bondholders) of any event or circumstance which is, or could constitute, an event of default under the bonds.

The bond documentation may also prescribe that such notification shall only be made by the issuer to the trustee/agent who will then have an obligation to notify the bondholders.

If the bonds are listed, you should, in addition to the applicable legislation (such as the EU Market Abuse Regulation, 596/2014), also consult the issuer regulations applicable to the relevant exchange to make sure that these are complied with. Typically, an issuer of Danish listed bonds will also be required to inform the Danish Financial Supervisory Authority using the web-forms for this purpose on the website of the Danish Financial Supervisory Authority and to make a public announcement to be filed on the relevant exchange and the issuer's website.

Dealing with creditors, including amendments and waivers – Bonds: 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?

Danish law does not include provisions regarding waivers or amendments to the terms of the bonds. Amendments/waivers will be governed by the terms of the bond issue. Generally, the issuer and the trustee/agent may agree to waive or amend any of the terms, provided that such waiver or amendment is not detrimental to the interest of the bondholders or such waiver or amendment is required by applicable law, court ruling or administration decision.

However, if this is not the case, the issuer will have to either (i) call for a bondholder meeting; or (ii) direct the request to the trustee/agent, who will then be under obligation to call for a bondholder meeting to approve such waiver or amendment.

If the bonds are listed, you should, in addition to the applicable legislation (such as the EU Market Abuse Regulation, 596/2014), also consult the issuer regulations applicable to the relevant exchange to make sure that these are complied with. Typically, an issuer of Danish listed bonds will also be required to inform the Danish Financial Supervisory Authority using the web-forms for this purpose on the website of the Danish Financial Supervisory Authority and to make a public announcement to be filed on the relevant exchange and the issuer's website.

Dealing with creditors, including amendments and waivers – Bonds: c. What is the process for contacting bondholders and holding meetings to agree changes in the terms of my bond documents?

Danish law does not include provisions regarding the call of bondholder meetings. The call of meetings of bondholders will be governed by the terms of the bond issue or separate contractual agreements, e.g. trustee agreement or agency agreement and will typically allow both the issuer and the bondholders to call for a bondholder meeting. It may be agreed that the bondholders' right to call for a bondholder meeting is limited to, e.g. request by bondholders holding not less than 1/10 of the aggregate principal amount of the bonds.

The number of bondholders required to consent to changes vary in each bond issuance and depend on the matter to be discussed. It can be anything from simple majority (i.e. more than 50%) to a majority requirement of 66-80% of the bondholders.

If the bonds are listed, you should, in addition to the applicable legislation (such as the EU Market Abuse Regulation, 596/2014), also consult the issuer regulations applicable to the relevant exchange to make sure that these are complied with. Typically, an issuer of Danish listed bonds will also be required to inform the Danish Financial Supervisory Authority using the web-forms for this purpose on the website of the Danish Financial Supervisory Authority and to make a public announcement to be filed on the relevant exchange and the issuer's website.

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?

The Danish government has initiated a number of relief packages to provide support for businesses and citizens in getting through the COVID-19 crisis without deep losses. The packages are to provide economic relief in different situations and are subject to different terms and are not conditioned on the use of proceeds for green or social purposes, nor to sustainability-related outcomes. Businesses may make use of more than one relief package. It is, however, not possible to obtain compensation for a loss more than once.

DLA Piper Denmark has produced an overview of all the assistance packages and which businesses are eligible here.