The economic impact and consequences of coronavirus are unprecedented as it spreads across different countries. To protect their markets, many countries have reacted by loosening obligations and lowering rates. While most of these initiatives have an immediate impact on a business’s cashflow and are welcome they also, in many cases, have a long-term impact on the archive period for fiscal documents.
The implications for e-archiving
Among the relief measures being taken, tax authorities have temporarily closed their tax offices and stopped tax audits. In parallel – and motivated by the interruption of tax authorities’ activities – many countries have extended their statute of limitations (aka periods of prescription or decadence in civil law countries). In other words, the period held by tax authorities to audit businesses and enforce fiscal obligations is quietly being extended. So far, Italy, Spain, and Portugal have taken this step.
The statute of limitations is generally associated with storage periods of probatory documents. But storage periods and statute of limitations are occasionally regulated by different laws. Consequently, while these periods coincide in some countries, in many others the extension of the statute of limitations directly impacts storage periods which are consequently prolonged. For this reason, changes in statutory periods mean taxpayers must analyze such initiatives and their impact on the storage period of fiscal documents.
Expanding limitation periods can impact local and multinational businesses alike. Local businesses may have to create a distinct storage period for fiscal documents created up until a certain date. Multinationals however face the additional challenge of keeping track of, interpreting and implementing new laws for multiple countries. Many of the new rules are often passed quickly leaving little time for companies to prepare and comply.
A fragmented approach
Statutes of limitations differ from country to country. They are the result of decades, if not centuries, of legislative and judicial developments. Consequently, statutory periods cannot be interpreted without their legal context. There are also variations on the legal mechanism to change statutory periods. In some countries, the time-barrier can be expanded through a decree from the executive power or even from the tax authority itself. In other States, a complex legislative process through the local parliament is necessary. Italy, for instance, leveraged a law from 2015 to expand its statute of limitations, while Spain and Portugal passed new laws on this subject.
Keeping track of these legislative changes can be daunting and time consuming. It requires a deep understanding of local laws to be interpreted and applied correctly, and their impact on tax obligations.
So, while Governments around the world implement tax measures to protect their economy and support local businesses, taxpayers cannot just relax and benefit from these financial reliefs. They must keep up to date and informed of changing requirements when it comes to tax compliance.