Federal government corrects rules regarding the deduction of foreign losses
The federal government wants to adapt the corporate tax rules regarding the deduction of foreign losses. The changes are part of a draft law that the government has recently submitted to Parliament and that contains a series of tax measures, mostly repair legislation.
The corporate tax reform of 2017 contained new rules regarding the deductibility of foreign losses. Losses from foreign PEs or assets of which the profits are exempt in Belgium are no longer deductible, with the exception of final losses within the EEA. The new rules apply to losses from taxable periods starting as from 1 January 2020.
Losses from before that date remain deductible, but subject to recapture. As a result of the tax reform, the recapture rule was rewritten. However, a literal reading of the new recapture rule seems to imply that only losses which are carried forward are targeted and depending on the interpretation of the new rule, there may not be a corresponding adjustment of the Belgian taxable base after all. As a result, the double deduction may not be eliminated.
The new rules
The draft law adjusts the recapture rule so that it only applies if the foreign losses had been deducted from Belgian profits (or from profits which are not exempt by treaty).
Also according to the draft law, losses from treaty countries from before 1 January 2020 are excluded from deduction if the company cannot demonstrate that the losses have not been deducted from foreign profits. In any case, those losses can only be deducted to the extent they exceed treaty exempt profits (this must not be done on a country-by-country basis, however).
If a company, after the deduction of final losses, restarts activities within 3 years where the losses were suffered, those losses must be included again in the taxable base. The draft law states that this is only the case insofar the loss has been deducted from taxable profits. The remaining losses which have not yet been deducted, are excluded from later deduction. Final losses can also only be deducted to the extent they exceed treaty exempt profits.
All new rules only apply as from assessment year 2022 (but the current rules must be interpreted according to the new rules…).