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Parliament approves loss carry-back

Parliament has approved legislation introducing a loss carry-back (cfr. our previous e-tax flash). Companies which are in a tax paying position for financial year 2019 and expect a loss for financial year 2020 should check whether they qualify for the loss carry-back.

Parliament has not approved the reserve fund for reconstruction, but could still do so before the start of the parliamentary recess (21st of July)

Loss carry-back

Enterprises (either subject to personal income tax or to corporate income tax) will have the possibility to carry back the estimated loss of financial year 2020 and impute it on the taxable profit of the previous financial year 2019. This measure is intended to allow companies to get a faster refund of tax prepayments or to pay less taxes for assessment year 2020.

The carry-back, which can never be higher than the taxable profit (with corrections) of income year 2019, will be limited by a double ceiling: the losses to be borne by the company for income year 2020 and an absolute maximum of 20 Mio EUR. The carry-back, which technically works through a temporary exempt reserve, can be applied for income year 2019 and will be added back to the taxable income of the following income year, 2020.

The estimate of the loss of the company will need to be as close as possible to the actual loss with a maximum tolerance of 10%. The exceeding difference will, in the following year, be taxed separately at a rate scaling up to 40% depending on the amount of the excess.

A specific provision is also foreseen to eliminate the possible benefit of the reduction of the corporate income tax rate to 25 % as from assessment year 2021.

The measure is accompanied by some conditions to limit the cash out by dividend distributions, capital reductions, buy back of shares… Having a subsidiary in a tax haven as well as transactions with tax havens without economic substance also exclude the application of the carry-back.  Adapted rules will apply for companies where the accounting year does not follow the calendar year.

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Koen Van Ende
Partner

Corporate Tax
Brussels

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