Taxation in the Times of COVID-19: Part I
Find here the full transcript for Part I of our webinar on COVID19 and taxation. This one took a global approach with speakers representing Canada, Brazil, Israel and the Netherlands.
Our panelists were:
- John Richardson, Lawyer, Citizenship Solutions, Canada
- Ronaldo Apelbaum, Tax Partner, APGI Advogados, Brazil
- Meori Ampeli, Tax Lawyer, Ampeli Tax Law Offices, Israel
- Adriana Belei, Online Marketing Manager, p.Xel Digital Agency, Holland
Welcome to Taxlinked's latest webinar. This is our second webinar while under quarantine. Actually we're leaving the quarantine here in Cyprus as of tomorrow, so hopefully things will go well here. In any case, it's a very, I guess, appropriate topic for these days. So we're going to look at taxation in the times of COVID-19. We're going to review what certain jurisdictions throughout the world are doing in terms of tax in order to weather the storm economically and whatnot. So before I get to the introductions, let me get some admin issues out of the way. This webinar is being recorded, we're going to have a video recording available hopefully by the end of the week. We'll also have a full transcript available to everyone. We will share that with our network and the panellists, so stay tuned for that. Also, if you're a paid Taxlinked member, you're eligible to receive CPD credits for this webinar. However, as I tell you every single time, the system actually tracks whether you're paying attention or not, so make sure that if you want those CPD credits, you are being attentive, you're engaged, because otherwise we won't be able to send those to you. Also, if you have any questions for our panellists as you are listening to what they're saying, make sure you use the GoToWebinar control panel, submit those questions, I will be moderating and I will make sure to either save the questions for the end of the webinar or pass them along as we speak. Also, Adriana has been kind enough to share a couple of handouts for all the attendees on taxation in the Netherlands and also some information on online marketing. So please make sure to download those. We will also post them on Taxlinked for everyone else who didn't get a chance to attend. So the handouts are there, so please feel free to download. So without further ado, I'm going to ask each one of the panellists to introduce themselves and then we will start with the six questions we have prepared for today.
Meori Ampeli: Thank you, Mateo. A good afternoon to everyone. I have an office in Israel. I am both a tax lawyer and an accountant. My office is in the Tel Aviv area. As we know, we are all faced with a worldwide crisis, also here in Israel. So we have a lot of tax news and so on. So I'm happy to be here and ready to discuss the Israeli tax aspect and looking forward to it.
Adriana Belei: Hello, my name is Adriana and I'm the founder of p.Xel Digital Agency in Holland, an agency specializing in helping service-based businesses communicate better with their clients online. In this webinar, I'm going to explain the digital marketing part and, since I'm based in the Netherlands, I'm also going to give you a couple of tidbits about what the tax authority has been doing so far in terms of COVID and what help or tax rules have been applied here.
Ronaldo Apelbaum: Hello everybody. Good morning from Brazil in a different time zone. So my name is Ronaldo Apelbaum and I'm a lawyer here in Brazil. I'm the CEO of APGI Advogados that is a local office and we deliver tax issues and we help people and companies to navigate Brazil's legislation and all the crazy things that happen here. So thanks again and let's talk about everything that's going on.
John Richardson: Hi everybody. My name is John Richardson. I am based in Toronto, Canada, I'm a lawyer with a very niche practice, I help those afflicted with US citizenship or green card problems, which largely by the time they contact me has to do with the necessity of severing ties with the United States. But certainly the COVID-19 thing is a huge deal worldwide. A lot going on in Canada, the Government of Canada has been extremely reactive to this situation. And it's making lots of emergency funding available, of course, in return for having shut the country down to begin with. It'll be interesting, and I worry if maybe the cure is going to be worse than the disease on this. But anyway, looking forward to a great chat.
Mateo Jarrin: So what I have to get started are two questions, which basically is going to allow you to kind of lay out what each one of your jurisdictions is doing in terms of taxation in the times of COVID and also talk a little bit about some of the tax breaks or benefits that have been given to individuals and companies during these times. So the two questions I have to get us started are: First, how has COVID-19 affected your jurisdiction's tax regime? And, second, what sorts of tax breaks or benefits have been put in place as a result of COVID-19? So let's get started with Meori, tell us a little bit about what Israel is doing and how it's been impacted.
Question: How has COVID-19 affected your jurisdiction's tax regime? What sorts of tax breaks or benefits have been put in place as a result of COVID-19?
Meori Ampeli: So, as we know, the coronavirus in Israel and worldwide has had a direct impact on the Israeli tax regime. First, its effect on the Israeli tax authorities, which needed to close its offices. We don't have any connections with the tax authority since mid-March. It also saw the need to provide some extensions on tax refunds and so on. And the government needed to provide certain tax benefits and certain grants for various aspects. So, if we talk about the employees, first of all, on March 20, the eligibility to unemployment benefits was broadened dramatically, which allowed employees to be put in involuntary unpaid leave for at least 30 days with unemployment benefits provided for a certain month. So basically employees were forced to go on vacation; we talk about 1 million people right now, we have unemployment of about 25% of the market cap, of the market working here in Israel. So the government allowed certain months of unemployment. The funny thing or the ironic thing is that right now, when we want the market to come back to shape again, part of those employees prefer to stay at home and receive these unemployment benefits until it's over. On the one end, you want to get businesses back on track, but on the other end, people prefer to be in the summer and the sea, but it's a huge problem with respect to the unemployment.
With respect to the SMEs and the self-employed, so there were two grants, the first grant of March 20 was very small, about almost 2000 Euro for a business, which probably was not enough for businesses that needed to be shut down dramatically. And we need to understand that in Israel since March 12, the restriction came into force. And from about March 24, if I'm not mistaken, it was almost a full quarantine. You cannot leave your house but only 100 meters away. Most of the business were closed up to the business of 10 employees like this or but if it's more, you should until April 1, you were allowed with only 30% of the employees to come to work and come to the office and, after April 1, it was only 15%. So most of the businesses were shut, were first to not work including all the restaurants and so on. Here in Israel, only next week the restaurants are allowed to be open, until now we just can work on deliveries and so on, but every single one is shut. The relief started after April 19, and right now the government allowed people to go to the sea, and if someone knows Israel, the Israeli very much like the sea and the summertime like Cypriots. It was very negative news not to go to the sea but it was released today.
So with respect to the self-employed, we have two grants, the first grant was more specific and included a lot of terms. The second one, it's wider; however, it only targeted businesses whose income was reduced by 25%. So we need to use and we need the assistance of an accountant and so on. So you can say, "Ok, very good business to you." But if you assist or help a business without the funds, without money, so, they cannot pay you. So, most of the offices provide this with no fees. And the second grant or remedy, this is right now applied to SMEs and also for a controlled owner here in Israel. Someone who works with a company basically is not entitled to the Social Security benefit if he's again in a situation in which the company is closed, he does not receive unemployment severance and so on. So that was the kind of thing relief. Right now, the second grant and the third one also target those kinds of business, which works through a company. And it basically comes to compensate you on the fixed expenses up to about 100,000 Euro for the period of March and April 2020.
The problem here is that there is first uncertainty about the second wave. Nobody knows if we are going to face a second wave. Because right now here the results are relatively good. We have about 250 deaths until now. And basically the numbers are about 3000 people who still got the COVID-19 but no one knows what to expect. I think that the government here should provide the plan for the entire year so that the businesses know what's happened because right now someone working on a cash basis might prefer to defer the income to July, because July is out of the scope and that's why he can reduce the income and then improve the grant. So right now there is the kind of uncertainty and other tools the government uses, basically after a lot of criticism, is to defer the VAT payment for SME businesses until May 25 instead of middle of April.
Another tool is the loan guarantees by the government. The government provided the guarantees for businesses up to 50% of the loans and basically deferred the interest for the first year, and the loan should be refunding in five years under very good terms. However, the problem is that the 50% is not attractive for risky businesses such as restaurants, tourist places and so on. And those kinds of business are faced with difficulties to get the loan from the government or either from the banks and so on. Meanwhile, I should say that right now I hope that the first wave is behind us, the government tried to help the businesses. The pace is not enough, the bureaucracy here in the grants and in the loans, which need to involve the banks and so on, make it slower. But anyway, I think that we are now at a phase where we need to move forward and get back to shape. That's what I hope.
Adriana Belei: In terms of taxation, so we have been down for two months and we're reaching towards the end of the lockdown period so this is something that is going to finish in June. And from June 1, restaurants, bars and so on will start to open so for us it was not such a severe lockdown where you could barely go out, we didn't have so many restrictions. Then again in terms of financial aid and other support from the government, they're giving employers with 20% percentage of turnover loss, they can receive up to 90% of their employee wages. This is something they need to measure depending on the loss the companies have had.
Then they have for entrepreneurs and for self-employed people that have been working in sectors affected by COVID, they have two types of help. The first is the temporary benefit or loan for entrepreneurs to make up for the loss of income. And this is something that has been provided from March 1 onwards, and it's supposed to happen till the end of the lockdown period. And the second scheme is a reimbursement for entrepreneurs in sectors affected by COVID and the government is going to provide 4000 Euros reimbursement. When they started implementing it, it was open only for entrepreneurs in specific sectors that were more affected by COVID such as hospitality, for example. But then during the past month they have extended to other sectors that were not classified as affected by COVID. So this is a way to help other types of entrepreneurs to also receive and take advantage of this.
For SMEs, they also have some measures to secure bank guarantees, they have a guarantee scheme for instance for agricultural entrepreneurs. Then for start-ups and scale-ups, they have a corona bridging loan, which gives between 50 thousand and 2 million Euros depending on the project, depending on the scale up and the start-ups. In terms of companies who have applied for microcredit, they can delay their payments and also they have interest reduction of 2%. And then in terms of tax measures for businesses and employers, for instance, payment extensions for several taxes such as corporate tax, payroll tax and income tax have been extended for three months. VAT rules are also going to be eased for the healthcare sector to lower the administrative and financial burden. For employers, there have been measures to ensure that there is a low unemployment benefits and also payroll taxes and travel allowances tax rules have been eased.
On May 6, the Dutch government decided to gradually relax the rules from May 11 onwards. From June 1, hospitality businesses can re-open. From July 1, campsites and holiday parks may reopen. From September 1, fitness centers, spas, casinos and others can re-open. Where possible, it remains the 1.5 meters distance rule.
They have provided help for SMEs, for entrepreneurs, so they have different types of schemes. So, I think that made it a lot easier to understand and to apply from the very beginning. For instance, if you ask as an entrepreneur for one of these schemes, the waiting time is 4 weeks for an answer whether you will receive it or not, which one can apply for. So we have quite a clear roadmap about the help and the support we can receive depending on each situation.
Ronaldo Apelbaum: Yes, as you know that the case of Brazil is really very complicated because this started in Brazil in the middle of March and only people that had money had COVID in the beginning. So it was from people that were in weddings, parties, Carnival and things like this. And now we are coming to a situation where unfortunately Brazil is a very poor country. So people living in small houses with 10-12 people from the same family in just one single bedroom. So now we are in a situation where the coronavirus is exploding. So yesterday we had more than 1000 people that died just only yesterday from this and people that are specialized in this issue they think that maybe the number is five or six times more than the official number. So they say that at least everyday, maybe 8000 people are dying from the coronavirus here. And in the next days, we're going to overtake Spain. And we will be along with the United States and Russia as the worst countries of the world in terms of numbers of this. So it's very complicated situation in terms of health, people are desperate. So our economy has already decreased only until April by 3.5%. So there is an expectation that we may come to 10% until the end of the year. And, for instance, when we talk about restaurants, 50% of the restaurants in Brazil will not reopen after the coronavirus and why is this? Because for the people that have business in Brazil, cash is something really complicated. There is no cash available for months and months to stay with your business closed. So to be very honest and this is not trying to be worse than others, let's say like this, but people are really desperate about all this. And what happens?
As I told before, this situation really started in the beginning of March. So what was the decision from the government, from the federal government specially where most taxes are paid? Let's give a relief for the companies. The taxes that should be paid in April were postponed to August. And taxes that should be paid in May were postponed to October. And also companies could like suspend employees, they should not work for two months, and the government would pay most part of the salary for two months, so April and May. And also the government decided to give $100 for each family also for two months. So, April and May. And what happens? This was really something that worked very well. And companies were happy about that. People had access to the benefits. We didn't have a situation like Meori mentioned in Israel, the unemployment grow a lot, no, that didn't happen, because the companies should keep the job of people in order to receive these benefits. But what we have now? May is already finished, it's ending. So what is going to happen in June, July, and August considering that we don't know yet in Brazil, if we are in the beginning of the curve, in the middle or in the top? So what about the future?
Of course, we have also a legal big issue in Brazil is that you cannot give a tax reduction for people and for companies unless you prove that your expenses will also be reduced. So let's say our income tax rates cannot change if the government does not prove that their expenses will decrease to. So what happens? It's impossible to decrease the expense right now. They need to give money for people to survive. So we are not going to have any reduction of taxes, only some payroll taxes were reduced just a bit, but all other taxes are still with the same rates, need to be calculated in the same way, need to be paid during this year, and they cannot give a reduction, and they are already creating some new taxes because the expenses were growing a lot. So we are really going through a crazy situation where the economy is decreasing a lot, taxation will probably grow. We are going to have kind of attacks on financial transactions in the banks. So this is the scenario, that from a tax perspective, from a labour perspective, from an economic perspective, it's really crazy what's going on. And people have no idea what's going to happen. The risk that they identify now is like Chile, that there was a lockdown in Chile, and people started to invade the markets to steal things, to put fire on the public buildings. So they are afraid of bringing some kind of lockdown in Brazil, and people start putting fire in public buildings and things like this. So the coronavirus does not decrease because there is no lockdown because everybody's afraid of a lockdown. So how to deal with all this? This is the challenge.
John Richardson: Well, after having listened to the first three of you, I would say all of the above, you know, to more and lesser degrees. I really must say, Ronaldo, listening to your description in Brazil, makes it very, very clear that there's a huge difference in the way this is impacting one part of the world versus the next. I particularly latched on to your comment about the living density of — what did you say 10 to 12 people in a room or something? — and that's being played out in Canada in seniors retirement homes and this sort of thing where, at least according to the media, these have been the hotspots of growth. So I mean the situation there must be absolutely awful.
In Canada, there has been basically a lockdown since March; the result of the lockdown has been that, essentially, businesses have been forced to close because the government told them to close. And years ago, a lifetime ago, I was an economics student as an undergraduate and I remember reading about the velocity of money and that sort of stuff. But it's the first time in my lifetime that I've ever experienced what happens when the flow of money simply stops, people don't have money to pay anybody. And it's a horrible thing, obviously, but it's also a very, very interesting thing. So, to some extent, I think that accounts for the responses from governments around the world to find a way to inject money into the system, to get people spending and this is being done in different countries in a variety of different ways. And recognizing the title of this is taxation and how does taxation bear on this, it's interesting me that some of these benefits in some countries are being administered really directly through the tax system. For example, the United States, where it's at least to the extent that I understand it, to the extent that you can understand anything that comes out of the United States, it's basically a tax credit sort of thing. In Canada, interestingly, I mean there is something for everybody. In fact, there was so much here. Usually, I just talk off the cuff so to speak, but I've actually got a list and I don't even know if I have time to get through the whole list. In terms of all the targeted relief for all the groups, I mean, I'm expecting next week, the Prime Minister has a briefing every morning, by the way, I'm expecting next week he's going to announce relief for family pets, probably subdividing into dogs and cats and then the next week, a further subdivision of different kinds of dogs. But it is truly incredible.
In broad strokes, what's happening is there's direct relief for individuals who've been working, including ones that are not eligible for the basic unemployment insurance. Interestingly, there's direct relief for students who normally would be looking for a summer job at this time of year. There is, I'm going to call it direct relief for businesses if you want to take it, okay. Now, this stuff is a little bit more interesting because the stuff for individuals and for students is actually administered, I mean, I assume this stuff is taxable. You have it reported on your tax return, but it's just administered through direct application. You know, "Hi, I need some money, good stuff, okay, just fill out a form, we're going to send you some money." I mean, it is amazing. As the rule says for individuals, they can get $500 a week for four months. That's how it stands now, I would expect them to expand this. And I really must say that there are some people who are better off financially with this than without it. And then they're offering students something like, I mean these numbers probably mean nothing to listeners, what does this mean, but a slightly reduced version of $350 a week for students. And this is not so bad, particularly given a lot of students might not be able to get summer jobs anyway. And, again, you just apply for this stuff, right? I mean, it's not tied directly to the tax system. And this is hugely significant because it has to do with how quickly you can get it and stuff like that. And for businesses, they have a wage subsidy program where they're going to pay up to 75% of what you were paying them up to a maximum of 800 and something dollars again, the numbers not particularly relevant. But the point is that this is beyond massive, this is something that and by the way rent relief in various formats. This stuff is so massive that it's going to have an effect on the economy that it's almost the equivalent of a nuclear bomb hitting the economy. The amount of money in North America anyway that they are printing to keep the flow of money going is so astronomical that I think that people, on the one hand, they need cash, and on the other hand, if they have cash, they better buy something. Because it's going to be like Germany in the Weimar Republic where you'd have a wheelbarrow full of cash and people would steal the wheelbarrow and leave the cash. This is the direction that this stuff is going. And it's like there's nobody as far as I can see in this country, Canada, that isn't entitled to some kind of relief. Now, I will say that I hate interaction with government as a matter of principle. So I would not test it myself and apply for it and I know a lot of other like-minded people who would not, but for most people, this is really just like Christmas. It's like it's raining money. For a lot of people, small business.
Ronaldo again I think made a very important point when he said that businesses won't be opening up again, I think that was what you said. Right? I believe the same thing is absolutely true in Canada, particularly in the restaurant sector. And that, I mean, these are tough businesses. And most small business owners, I think certainly in Canada, but I think in the world, probably don't make that much money. Some do but most of them don't. And years and years of just being able to pay their rent, their bills every month, and then all of a sudden they're shut down. I mean, they are shut down, right? This was not a voluntary thing. I don't think they're coming back a lot of them because after a few months of this, they're going to say, "You know what? Oh my God, as far as I can see, I'm living the same way anyway. Why bother with this?" I mean, they'll do something else, right? Because these small business people that's just how they're wired. They go out and do stuff, but I don't think that they will come back to those businesses.
So, I think that, a few months from now or maybe a year from this day, May 20, 2021, I think the four of us should get together again, and talk about what we'll call post COVID-19 world or something and what to do from this point, because there's absolutely no way the world is going to look the same coming out of this, I think, anyway.
Mateo Jarrin: We have about 40 minutes left. I'm going to shoot a couple questions. I know there's a question here specifically for John, I'm going to get started with that one. Our good friend Karen Alpert posted this for John. This has to do with US citizens in particular. So the question is: Various countries have used different mechanisms to provide relief for the residents of this crisis. Some have used tax credit like the US, while some others have just paid out cash. Can you address how the specific mechanism of the payment affects the US tax liability of US citizens receiving payments from other countries where they live? What are your thoughts on that, John? And I know we could do a whole other webinar just on that topic with you and Karen but give us a little summary.
Question: Various countries have used different mechanisms to provide relief for the residents of this crisis. Some have used tax credit like the US, while some others have just paid out cash. Can you address how the specific mechanism of the payment affects the US tax liability of US citizens receiving payments from other countries where they live?
John Richardson: I didn't know that came from Karen. But it is a good question. And I know this is uncharacteristic of me, but I did organize an answer for you, primarily because I don't know. But I'm going to explain why I don't know and what I think the right answer probably is, or at least how to think about this as a problem.
Okay, so Karen is right. And I think we've all agreed that different countries are doing it differently. Now, the first point that I think needs to be understood here is that by administering this through a tax credit system, the United States, this relief will not be taxable to Americans by the United States, okay, because it's a tax credit. So the real question is given that other countries are delivering cash in different ways, how does that affect US tax liability I think for Americans abroad, right? This is what we're what we're dealing with. Questions been kicking around everywhere. So let me take a stab at this.
But in order to do this, I've got to go back to first principles here just a little bit, so bear with me. You know, when we talk about US taxation, we need to look at the Internal Revenue Code. So let's begin with the first very first principle, which says simply that according to the Internal Revenue Code, every individual on the planet, unless you're a non-resident alien, is subject to worldwide taxation on income. Okay, everybody, which by the way is why in a global world, a US certificate loss of nationality is worth far more than the US passport. Now, next question is: What is income? We're actually going to turn to Section 61 of the Internal Revenue Code on this. Now, the reason I want to approach it in this way is because US tax code is very different from tax codes in many other countries, in many countries they define what income is specifically. In the US, every improvement or increase in value is presumptively income unless there's a statutory exclusion. This is actually unbelievable. So think of this, right? Every individual on the planet is subject to worldwide taxation on your income and everything is income, right? I mean seriously, this is the starting point. And this is reinforced by the 1955 US Supreme Court decision in a case called Glennshaw Glass, which basically says that any increase in value, any improvement in value in your life is going to be income. It's a decision of Chief Justice Warren—parenthetically, he was appointed by President Eisenhower in the 50s, and after appointing him, President Eisenhower said, it was the damned most foolish thing I'd ever done in my life and that may be the reason for it. But this is what we're looking at now. This, if you think about it, is why the US tax system is understood to operate to impose direct taxation on welfare benefits in other countries that are not even taxable in that country, all kinds of social assistance benefits, right? Because these are accretions in value, defined as income to US citizens without a statutory exclusion.
So the only way that I can see in terms of the Internal Revenue Code to avoid taxation on this stuff is through section 102 of the Internal Revenue Code, which specifically excludes gifts from income. And my view of this is that—now remember that we're looking at this according to US tax principles—if somebody in Canada, let's say, somebody's getting this 500 a week, 2000 a month thing from the Government of Canada, and you can use this reasoning by analogy in your own countries, and there's no requirement to pay it back. They don't have to do anything for it. They're just given, it's a gift, they give it to you.
So, I think the question one would ask is: Is this a gift? And I think I would be comfortable in most cases, right. I mean, we have to kind of look at the characteristics of the program in the country to take the position that this is a gift. Otherwise, what's interesting, we are in the completely ridiculous unjust situation where the relief given by the US government, because they're calling it a tax credit is not taxable, but somehow if another country does not call it a tax credit, then it is taxable. Right? And this is a bunch of nonsense. All right, basically all these countries are just, it's raining money so to speak, and there's no requirement to pay it back, which there isn't a requirement to pay it back. It's not tied to anything, it's not conditional on really anything in some cases, then, you know, maybe participants on the panel can help me with this, why would you not just characterize it as a gift? So I think that that's actually the starting point, in terms of how I would analyse it.
The next point I would add is: Don't forget that there are tax treaties. The US has tax treaties with a lot of countries, and in some cases, different provisions of the treaties actually say that one country can tax this or another country can't tax this, you know, etc., etc. And I wonder, given the wide variety of programs, I mean, let's say that we have, for example, a Canadian program and I don't think we're that far from this because the Prime Minister Trudeau, or at least I read that he said, "Sit tight, I'm coming out with a program for seniors." Well, seniors are getting Canada Pension Plan, they're getting old age security. Now, the reason I mention this, because under the Canada US tax treaty, those particular programs are not taxable by the US. So this may provide another avenue for how to argue that relief payments to certain groups in Canada may, in fact, either not qualify as income before they're a gift or, if they were income, might be excluded from taxation under a provision in the tax treaty.
Does this make sense? Or do you all think I'm completely out of my mind? I'm doing the best I can with an uncertain situation. And those of you who know me would understand that I would start with an operating presumption that people should not be paying this tax on this money to the US government if they don't live in the United States. So there you go. That's the best I can do on short notice.
Mateo Jarrin: I have here another question that was actually submitted by Meori earlier today. I'm going to pose it to Meori first, and then we'll switch gears and do the business development online marketing stuff, which I think is also interesting to look at given COVID-19. But the question here is: What is the position of the local tax authority regarding people who are stuck in one country because of the coronavirus? Do they change their tax residency? What's the position of the Israeli government?
Question: What is the position of the local tax authority regarding people who are stuck in one country because of the coronavirus? Do they change their tax residency?
Meori Ampeli: The Israeli government right now and the Israeli tax authority, although they know and are aware of the relevant publication of the OECD, the OECD published its guidelines or its recommendations on how to react in the COVID-19 period with respect to people who are stuck in another country if they raise a permanent establishment situation because they should stay in one country but manage their business in another country, do they create an effective management and control in this country and so on. And the recommendation regarding the resident tax issue, the recommendation was to freeze it and not to count the days because, just for example, here in Israel, if you stay more than 183 days, you're considered as if your centre of life is in Israel, it means that you are subject to a worldwide income and again you may create the situation of permanent establishment and so on. So, the OECD recommendation is to not count those days and ignore them with respect to the resident test.
However, the Israeli tax authority right now does not publish its official approach but from the newspaper and from unofficial thoughts, their thinking is to test case by case and not provide the general relief, which creates a lot of uncertainty. Because I meet every day with people who came to visit Israel in March because this is kind of the Jewish holidays, and they suddenly don't have a ticket back or their flights were cancelled, and the question is what's happening here. So we find those ones and we find other ones who came back to Israel because of the situation here, which was better than in other countries. So, in that case, there is a question of: Do they become Israeli tax residents again and so on? So the Israeli authority now stands with a vote position and I hope in the future that the committee gives a recommendation to make a short or interim revision to the Israeli tax ordinance in order to let this time to fall out of the count of days. Meanwhile, we don't have the answer. We should understand that we have a new government here in Israel just from this week, we didn't have an elected government for about 15 months. So right now, I hope that if the political situation will be more stable, we will have more answers and more certainty. Right now, we don't have a clear answer for those issues.
Adriana Belei: I'm not aware about what happens to people that get stuck in the country so I suppose they have to remain until they are allowed to travel again. So what I do know, for instance, is that right now this moment, since most European countries started to ease their traveling bans, so if somehow you're allowed to travel, especially from June on there are already flights available, then I don't know what happens to people who have to stay during the coronavirus in another country.
Ronaldo Apelbaum: No, we don't have this discussion. But the point that Meori brought is very interesting because we have in Brazil also a rule that if you stay here inland for more than six months, you become a tax resident in the country. So this is not a priority for the government right now. But it's a very interesting issue. But you'll see that here in Brazil it's not a problem because people are still allowed to travel abroad. So we don't have this kind of situation. But if we had a situation like you, for sure would bring some very interesting discussions here too.
John Richardson: Very quickly. This is an invention of the accounting profession, really, and the legal profession. Because what we're talking about in simple terms is many countries have rules. If you spend too much time in a country you become a tax resident. All this stuff assumes that you're voluntarily there. None of this didn't contemplate that the people were involuntarily there. If these rules are to be interpreted that somehow they become tax residents when they're essentially held hostage, then what's to stop countries from just going and kidnapping wealthy citizens, locking them up in their penitentiaries, making them a tax resident and then confiscating their assets. But I mean, seriously, the accounting profession and the legal profession really needs to learn to read legislation in terms of intent, I think.
Mateo Jarrin: Okay, let's switch gears. Now we have about 20 minutes or so. We're going to switch gears now and we're going to talk a little bit about marketing and business development during the times of COVID. I'm about to present this question first to Adrianna. I'm going to combine the two questions together and you can feel free to you guys talk as long as you want. But the two questions are: How can financial service providers and lawyers best develop their business considering the current scenario? And how important will online marketing and video conferencing be moving forward? I know it's important right now already, but I mean, it's probably going to ramp up as a result of COVID. What are your thoughts on this as the digital marketing experts on the panel today?
Question: How can financial service providers and lawyers best develop their business considering the current scenario? And how important will online marketing and video conferencing be moving forward?
Adriana Belei: Yeah, well, in terms of online marketing, I think there are two challenges. So the first challenge is how do we help our clients, how do we continue providing value for the clients. And the second challenge is also now we don't have any more face-to-face meetings. How are we going to manage communication between our clients and ourselves? Because videoconferencing was something that was used mainly for internal communication between employees within a company but not for outside communications. So that changes a lot because you have security issues, you have to start selecting a software tool, so this is a challenge. So maybe we can go for the client part first, we can see how we can help our clients, and then we can jump to the videoconferencing part.
So, in terms of how do we help our clients? So in terms of helping the clients, the first thing that I personally recommend companies is to try to figure out a way to help clients to succeed through this time. And to do that you need to put a little extra effort, meaning that, for instance, there are some clients that want more specific information, they want a contract or they want you to provide specific information or specific advice regarding the situation they're in. But then there are other clients that don't communicate this need but still need to feel they have their lawyer, their accountant with them. So it is important to also check up on those clients. So we need to show empathy. We need to provide them resources and we also need to be flexible in the way we approach the clients and continue offering value.
And then the second thing that we also experienced here is that we suddenly had an increase of inquiries coming sometimes. So trying to change their marketing strategies or trying to address their marketing strategies to this period. What is going to happen, how I'm going to get new prospects, but the idea is not to try to get new prospects right now. The idea is to try to keep and nurture the clients that bring more value to the company.
So in the presentation there is a point where it says: Focus on things that really matter, the 5-5-5 list. So what we advise companies is to focus on things that really matter and bring value to the company. So that is five clients that bring you revenue and more opportunities. Five colleagues that are going to support, to be able to take care of their time. And then finally five influencers meaning people that are going to bring more opportunities for your firm. So you need to circle out those five clients, colleagues and influencers and nurture and work on them because those are going to be the people that once you're getting out of the COVID situation are going to continue working with you. And you also can control, you can have an impact on their cases, you can have an impact on how you handle their projects, but you cannot be providing services and advice to everyone because they're trying to find a solution for their cases but they are not open to hiring services. So it's better to focus on someone you have been working with, with previous clients, than trying to put your efforts in attracting new clients. So maybe prospecting and attracting new clients is something that you would leave or you to start to prepare your strategy in three-to-six months time, because right now it's something that is just not worth the investment.
Lastly, regarding how to help clients is to listen to them and guide them through the three stages of pandemic planning. So we already have an emergency situation, we don't even know what the situation is and each company has to adapt to this, but from now on we can also plan the next step. So what is going to happen in an early recovery situation and what's going to happen to clients once the COVID situation is recovered, but basically how it's going to make the transition from the current situation to a normal situation.
So this is in terms of helping clients. And then in terms of setting up a virtual workplace, we have also detected three main challenges. And these were: How to stay focused, how you continue to communicate and engage with your clients effectively, and how you retain existing clients.
For these things we started to implement software solutions based on advice from law and accounting firms on which would be the best solution for them to implement in the company, and basically we've tried to advise them on selecting a software that integrates time tracking, case management and all the solutions together so they don't have to jump from software to software and also find the tools that suit them.
So, basically, encourage laws firms and accounting firms to stay connected to their clients, to continue adding value, to keep the communication open and be approachable. And also think ahead. So not only how to handle this situation now and how to keep informed and your client as well, but also to start implementing plans about the next step. So what's going to happen once we're recovered and we're going to start the activity again. And we're back to the office.
Mateo Jarrin: Thank you. Any reaction from the practitioners? Have you been following some of these tips? How have you been doing business development and marketing these days? Ronaldo, you want to give us some thoughts on how you have been doing it or what has worked? We have about 15 more minutes so we can use this to kind of wrap things up.
Ronaldo Apelbaum: It's very interesting what's going on in Brazil. For instance, I think I saw a number yesterday that around 25 million people did their first online transaction in supermarket, bakeries and things like this. So the companies here that were prepared for this situation, that had something developed in the web, and were prepared to deliver and not wait for people to come in to buy the products. They are one step ahead. We have a kind of eBay here in Brazil called Mercado Libre. That is a big company from Argentina. And now they are worth more than a lot of banks in Brazil. There are other companies like them, and now they have become the superstars in Brazil. So they deliver what you need in your house. So this is something that became the best business in Brazil nowadays. So people are becoming part of this transformation. So, for instance, a lot of schools were not prepared to give online classes. So you have a mess. A lot of kids now they are on vacation. A lot of kids are having classes. Some classes are really good. Some classes are really terrible. So we are still in this situation where you have mixed feelings about this. One of the Brazilian banks called XP announced last week that they don't want any more employees in their offices. So they're going to close all the offices, just have some meeting rooms, and everybody work from home. So let's calm down, things are going to change but not in this way. But there is really a big transformation.
Talking about our business, I think that the main change that we are seeing is that people are focused on what's really important, and they are not caring anymore about some details that were important in the past. So I can use t-shirts for meetings. I'm not afraid of showing our toys and collections and things like this. So people are not caring about this anymore. So they want to focus on what is important, we have to reduce fees a lot, we are working for free for a lot of companies like an investment. Because how are you going to charge someone if their revenue is zero, but they still need support, they need to renegotiate contracts, they need to pay employees or to take care of their documentation. So it's funny because when you say that you are a lawyer, all the businessmen say, "Whoa, you know you are doing very good because lawyers in these moments, they are always on top, making a lot of money." And that's not true. This is something that happened in the past. In Brazil, every two or three years, we have a big economic crash and things like this. And lawyers really did well and they became multimillionaires in these periods. But now it's different now. It's not something that is local, now there's not the assumption that it's just economic. So it's something that has impacted the way people live, the way people do things and the way people buy things. If they're going to buy, if they're not going to buy, what's the main focus. So even lawyers in Brazil are suffering a lot. What we hear from the big law offices is that they are not paying rent anymore and things like that. So we are really in this moment, in this crisis that we are having now, the way we do business will need to change. Even for lawyers, for accountants, for the ones that will work from home or not, you need to be flexible, your expectations should be lower, and we have to work more and more hours and be much more patient. And we cannot participate in a meeting and charge for that meeting like if we were doing legal advice in all the moments, so lawyers need to change the way we work and take care of people here. So it's not easy for anybody, even for physicians, for lawyers, for anybody that is important on this.
But, as I told you, I see positive things on this. And for me, the good thing about this is that, for instance, I have clients that in their contract, I need to have an office with employees, with spaces, with telephone numbers. And everything that brings a lot of costs for me. So, okay, now we just need the work. We don't need to see all that bunch of things that the clients liked to see in the past. So this is a good thing. Yes, I can work from home. And I can deliver as in the same way, or even better than I do in a beautiful officer with beautiful desks and a lot of people smiling and serving coffee for the clients, so this is the good part of all this.
Mateo Jarrin: John, what are your thoughts on how business is changing these days? I know you're big on the online world and you do a lot of the online marketing and whatnot.
John Richardson: Well, that's inadvertent really. It's just because the kind of work I do is just for people all over the world who have these problems. But let me answer the question more from the perspective of all the people I know in Toronto who work for large law firms or accounting firms. And I think that they're in trouble in two ways. One of the problems, I think it's a problem working with lawyers and large accounting firms, their overheads are very high and about 50% to 60% of every invoice that goes out reflects that sort of thing. What this has shown is that people can work as effectively from home and I think you're going to see a huge hit in the commercial real estate market because even if they go back to work, you've got the problem of air circulation, all this stuff, so I think it's going to legitimize and make the new normal people working remotely and that sort of thing. And that is going to mean that the fees are going to have to come down for these large accounting and law firms. So that's what I think.
Now, of course, I'm just an observer because I'm not in that world, but I will share an interesting interaction I had with somebody just a few days ago. Somebody contacted me and said something to the effect of "I do have an office in the Toronto area, but I don't go there that much, because so many people I work with are just not in this area." But it was interesting, because the presumption was, are you doing virtual appointments? That was the question I was asked. And I said, "Yeah, well, actually, mostly I do virtual appointments anyway."
So, looking around Toronto, I'm taking some pictures of this because this is so amazing, you look at bank branches, there are people lined up half a block to get into a bank branch or half a block to get into a grocery store. Obviously, the banks are going to get rid of these branches, it's the perfect excuse, they don't do anything for them anyway. We're going to see a world where we're going to have personal shoppers, just because people can't stand in line for hours and hours. So it's going to change. We will come out of this, but the world is not going to look exactly the same. And I think that it's probably good from a business point of view for those of us who are just used to working remotely or out of hotel rooms. In the last seven, eight years, I've done a lot of traveling and I am very used to working with people from hotel rooms wherever I am. So you're going to see more of that, and I think it's going to definitely put downward pressure on professional fees. I think it's got to because sometimes people want to pay a lot of money because they think they're somehow getting more but the problem now is that the overhead that somehow psychologically allowed people to charge this type of stuff is going to go. So, I don't know.
You know, everything will survive. There's no question about it. I think that for those who see long term careers, and I don't, but for those who are beginning or see this as a long term part of their lives, I think the job number one for the moment is probably survival. You know, people don't pay me. They never liked paying me but they especially don't pay me now. That sort of thing and that's the way it is. I don't know if you people experience it the same way or not. And so you kind of just have to say, "Well, life goes on. Either you think what you're doing is important or you don't, and if you think what you do is important, then you keep working and helping people." Which is basically what I do but the world has changed. We haven't even begun to see the changes yet.
Meori Ampeli: So again, I think that the situation is not good, as we know that. As we know from the past, in each situation we can have opportunities. This situation has opened new opportunities, as we know, for online services. I know that personally, I have a lot of Zoom calls, so most of the time I do Zoom with clients from all over the world and also from Israel. People prefer to meet from their house so we do a Zoom meeting. It's okay, you can control what you want to hear and you can work with a t-shirt and so on like Ronaldo mentioned before. Of course, also work from home. I used to work from home on Mondays for the last 10 years. But my team is now also working from home because here in Israel we don't have the train, the train is shut and so all the public transportation is very minimized. And only yesterday it was kind of open, so also my team is working from home. I think that if you focus on online marketing, online work, you can find new clients also with Facebook, LinkedIn and so on, those virtual tools still exist, the communities are available and so on. So, indeed, the small businesses are getting to a very concerned situation. I also remind myself that John mentioned before that we are just at the start of the process. The big crisis is ahead of us, unemployment and so on. And as tax lawyers and as tax experts, we need to focus on bad debt, on offset losses for our clients, and to think how we can create the value also in a losses situation. And, yes, it's a big challenge. We face a big challenge and uncertainty in the future, but we need to be sharp enough in order to focus, in order to find the opportunities. They are there and we should recognize them.