In order to improve the solvency of companies, two far-reaching tax proposals were on the table, namely the introduction of a carry-back of losses and the creating of a tax free reconstruction reserve. The carry-back of losses has now been approved by the Chamber.
The carry-back means that tax losses of a given year can be deducted from the taxable profits of the preceding year. As a result, companies pay fewer taxes for the year of deduction and can reclaim their advance payments for that year. Attention: the measure does NOT apply to companies already in financial distress on March 18, 2020!
The taxable period of deduction is any financial year closed as from March 13, 2019 to December 31, 2020. This means that the deduction can be applied for one of the tax years 2019, 2020 or 2021.
This then concerns the losses suffered during the following taxable period, i.e. during the tax year 2020, 2021 or 2022.
The carry-back takes the form of a temporarily exempted reserve that is simply deducted from the taxable reserves in the return. No booking is required. A specific statement will have to be added to the tax return.
The exempted reserve (increased by an additional taxable base to compensate for a possible decrease in tax rates) is then reversed in the following year and set off against the tax loss of that year.
The amount of the temporarily exempted reserve is limited to:
- the taxable result after the first operation (= movement of the taxable reserves + disallowed expenses + dividends paid) minus the dividend received deduction and innovation deduction or
- EUR 20 million.
In case the tax has already been assessed for the taxable period in which one wishes to deduct the loss, one will have to file an objection.
Attention: if the deducted loss exceeds the actual loss with more than 10%, a special assessment is foreseen between 2% and 40% depending on the magnitude of the difference.
In order to benefit from the measure, a number of other conditions have to be fulfilled.
More specifically, companies wishing to qualify for the measure should not, in the period from 12 March 2020 to the filing of the tax return for tax year 2021:
Distribute dividends in any form
Implement capital reductions
Buy back own shares
Conduct transactions with tax havens without demonstrable economic activity or have connections with these.
In addition, investment companies, cooperative participation companies and maritime companies are also excluded from the regulation.
The one-off carry-back of losses is certainly a great opportunity for companies to boost their solvency. However, it should not be taken lightly with regard to the penalty if the actual loss is less than the exempt amount.