The Coronavirus crisis is having a considerable impact on the Belgian economy. Many companies are on the verge of bankruptcy while others are struggling to turn their financial situation around. In order to strengthen the solvency and liquidity of these companies, the Parliament has adopted a bill enabling companies to deduct in advance the losses incurred in 2020 from the previous taxable period. On the other hand, plans exist to introduce an exempt reserve called the "recovery reserve" in subsequent tax years.
CARRY BACK OF LOSSES
The new measure allows businesses to use losses incurred in the year 2020 more quickly by applying them against taxable income in the year 2019. In this way, businesses could reduce the amount of tax they will have to pay for 2019.
More specifically, a temporary tax exempted reserve will be set up in the corporate tax return (tax year 2019, 2020 or 2021, depending on the case at hand) and deducted from the taxable reserved profits. The amount of the exempted reserve will be equal to the operating losses that the taxpayer is expecting for 2020 without, however, exceeding the company's taxable result after the first operation decreased with the deductible DTR and deductible innovation income. The reserve cannot exceed the ceiling of EUR 20 million.
The tax authorities will be able to apply a penalty in the form of a separate assessment in the event of an overestimation by more than 10% of the losses actually incurred during the year 2020.
It should be noted that companies which do not keep their accounts on a calendar year basis are also covered by the measure. Indeed, the bill stipulates that profits relating to a fiscal year ending between 13 March 2019 and
31 December 2020, may be exempted thanks to the carry back of losses. This means that a company that closes its fiscal year on 31 March 2019 (tax year 2019) will be able to exempt part of its profits on the basis of losses incurred during taxable period from 1 April 2019 to 31 March 2020.
« RECOVERY » RESERVE
For the tax years 2022, 2023 and 2024, plans exist to introduce for companies the deduction of a tax exempted reserve subject to certain conditions. This reserve is called the "recovery reserve".
The draft law (not approved yet) provides that companies will be able to set up a recovery reserve up to the amount of the taxable reserved profits of the tax period in question, but not exceeding the amount of the operating losses determined at the end of the financial year ending in 2020 or 2021 (for companies which close their financial year between 1 January 2020 and 12 March 2020). The recovery reserve will also have to respect the ceiling of €20 million.
Companies wishing to set up a recovery reserve will, unlike the first measure, have to record and maintain the reserve in a separate liability account (intangibility condition).
It should be noted that certain companies are excluded from the benefit of these two measures. Among the exclusions:
- Companies which have a special tax regime, such as investment companies or shipping companies.
- Companies that have carried out, between 12 March 2020 and the date of filing of their tax return, a repurchase of own shares, a distribution of dividends or a capital reduction.
- Companies that maintain a link with companies established in a tax haven.
If you would like to have more information in this regards, please feel free to contact RSM Belgium tax team: [email protected].