As part of the overall COVID-19 bailout package, the Government has introduced a temporary compensation scheme to cover fixed costs of companies, which are particularly affected by the COVID-19 crisis. The scheme applies across sectors and business sizes and is a supplement to the wage and salary compensation scheme. There are still uncertainties as to the how the scheme will work, but below we attempt to give our assessment of a number of the key issues.
Who can apply?
- All companies expecting a decline in turnover of more than 40 percent at home in the period 9 March 2020 until 9 June 2020 due to COVID-19 can apply for compensation for their overhead expenses (details on specification below). The addition “at home” indicates that the decline in turnover only concerns Danish turnover. The use of the word “at home” may also indicate that only Danish companies can apply for compensation. It is unclear how the authorities intend to define Danish and foreign companies, and such distinction may cause problems in relation to the EU law.
- If the overhead expenses are less than DKK 25,000 during the period, companies cannot apply for compensation.
How much can be applied for?
- Expenses entitled to compensation are expenses which the companies must pay despite the decline in turnover. These expenses include e.g. rent, interest expenses and expenses bound by agreement terms (e.g. leasing). Depreciations is not included and neither are wage costs, as such costs are included in the scheme for temporary wage compensation for waged and salaried workers.
- A company’s expenses entitled to compensation must be documented by a specification of overhead expenses for the three preceding months certified by an auditor. Contrary to the specification of the decline in turnover, the agreement does not include a subsequent adjustment based on the actual expenses incurred. Based on the current proposal, a reduction of the overhead expenses compared to the three preceding months is thus not expected to result in a claim for repayment of the received compensation. An agreement on postponement of payment is also not expected to influence the entitlement to payment of costs.
- Companies with a temporary ban to run their businesses may apply for compensation of 100 percent of their overhead expenses during the entire ban period. The compensation amount for the rest of the companies depends on the extent of the decline in turnover according to the below list:
- 80 percent of the overhead expenses in case of a 80-100 percent decline in turnover.
- 50 percent of the overhead expenses in case of a 60-80 percent decline in turnover.
- 25 percent of the overhead expenses in case of a 40-60 percent decline in turnover.
- The expected decline in turnover must be calculated in percent in relation to the same period in 2019. I.e. if the company experiences a decline in turnover in the period 9 March until 9 May, the turnover must be compared to the turnover of the same period in 2019.
- The maximum compensation per company in the period is DKK 60 mill.
- As is the case with other COVID-19 support schemes, it is expected that a broad company concept is applied, and thus that the access to compensation is not dependent on the actual form of organisation.
- In our view there are good arguments for calculating the decline in turnover on the basis on the whole business and not on the basis of the each company or specific entity. This could be done by using a group definition. However, in the agreement on temporary wage compensation, measurements are based on each individual company and it cannot be ruled out that the same approach will be used here to expedite administration of the program.
- The Danish Business Authority states in the compensation scheme for self-employed and freelancers that an application guide will be prepared “with e.g. guidelines for calculation of your expected loss of turnover”. We imagine that similar guidelines will be prepared for calculation of the decline in turnover in relation to overhead expenses.
- At present, the calculation of the decline in turnover gives rise to a number of questions.
- As an example, the calculation may result in problems for new companies without turnover for all or part of 2019. A solution could be to use the company’s average monthly turnover in all or part of its lifetime until 9 March – further adjusted for special fluctuations, if applicable. The essential must be to make probable that the turnover of the company would have been at a certain level in the period 9 March until 9 June.
- Merged companies or companies emerged by transfer of assets face a similar challenge because a common turnover for 2019 may be missing. If data make it possible, the calculation must be based on the turnover during the lifetime of the merged/transferred company. Alternatively, the calculation must be based on the companies’ individual turnover data from before the merger/transfer. Irrespective of the approach, the various methods ought not differ too much.
- The calculation of the decline in turnover also offers special problems for companies having experienced a high growth rate before COVID-19, and where the turnover for 2019 thus underestimates the actual loss of turnover related to COVID-19. The consequence will be a lower degree of compensation for the overhead expenses. To avoid this scenario, the company must prove that the reference period for 2019 is not true and fair, and that a reference period closer to 9 March 2020 must be applied instead.
- For administrative purposes, the Danish Business Authority will probably take a uniform approach to the reference period of the turnover. The open questions above indicate, however, that there may be a need for a case-by-case assessment or detailed guidelines for special circumstances.
- A decisive precondition to apply for compensation is furthermore to make probable that the loss of turnover can be ascribed to COVID-19. This is straightforward for many companies, e.g. airline companies and travel agencies. The connection to COVID-19 will need further explanation for other companies, including how the area of business/trade works and/or an explanation of why the companies’ usual customers have reduced the demand due to COVID-19. In this connection, it is unclear how the authorities will consider companies who may be assumed to be able to recover the decline in turnover in the three month period – e.g. if the company uses the period to produce for stock.
When and how can you apply?
- The Danish Business Authority handles payment of the compensation. Application will take place online.
- The scheme is still being prepared and must be passed in the Danish Parliament. The scheme must be open, before applications can be submitted.
- The Danish Business Authority has informed that application will not be processed according to a first-come, first-served policy.
- The application must contain a specification of overhead expenses for the three preceding months certified by an accountant. Documentation for the overhead expenses must cover part of or the entire period from 9 March 2020 until 9 June 2020. At the same time, the company must declare solemnly that the turnover has declined. It is still unclear whether the specification of the expected decline in turnover also requires certification by an accountant.
- If the application releases compensation for the company, 80 percent of the costs for certification by an accountant will be covered.
- We expect that the application form will contain little detail, and that companies with circumstances differing from the standard circumstances, which the scheme is based on, must expect a long case handling.
What must you pay particular attention to?
- The temporary compensation scheme applies from 9 March until 9 June 2020. In this period, you cannot receive compensation for the same cost from other compensation schemes introduced due to COVID-19.
- If your decline in turnover is more/less than expected, the compensation will be readjusted accordingly.
- The specific details of the scheme are not yet available. At present, only an appendix to the political agreement and a “fact sheet” are available.