Charging corona losses in 2020 to the 2019 financial year and tax-exempt reserve in an amount equal to the corona losses in 2020
The Council of Ministers recently approved draft legislation with relaunch measures following the corona crisis. This includes two important tax recovery measures.
Given to the serious economic and financial consequences of the corona crisis for the Belgian business community, the Wilmès government is launching a number of recovery measures. Two very important fiscal measures to restore the solvency position of enterprises stand out. Although there are no concrete legal texts yet, we summarize the contents of these measures below.
Tax loss carry-back
As a first measure, the estimated losses resulting from the corona crisis can be offset against the taxable profits of the previous financial year (2019). In this context, companies can, in their - in most cases still to be filed - tax return for the previous financial year (ending between March 13, 2019 and March 12, 2020) request (temporary) tax exemption for a Covid-19 reserve based on an estimate of the losses of the current accounting year 2020.
“In the tax return for the 2019 financial year, an exempt Covid-19 reserve can be created against which corona losses in 2020 can be offset”
As a result, the tax base for accounting year 2019 decreases and surplus prepayments can be recovered or tax supplements avoided. In accounting year 2020, this tax-exempt reserve would then be reversed against the tax loss resulting from the corona crisis. There will be some conditions attached to this procedure. For example, the reserve may not exceed the fiscal result of the previous financial year, and will also have an upper limit of EUR 20 million. In addition, the measure will not apply to companies making dividend or other distributions or capital reductions. For one-man businesses and liberal professions, a similar loss carry-back measure will be included for the personal income tax. Both systems will also specify sanctions for tax subjects who overestimate their corona losses.
A second fiscal recovery measure aims to rebuild the solvency position of companies through a so-called reconstruction reserve. Companies will be able to build up a tax-exempt reserve, in the amount of their 2020 operating loss, charged to profits realized in 2021 to 2023 (assessment years 2022 to 2024) and remaining on the liabilities side of the balance sheet ('intangibility condition').
“Companies will be able, during three accounting years, to build up a tax-exempt reserve in proportion to their corona losses”
The reserve would be limited to the annual increase in taxed reserves, with a maximum of EUR 20 million. In the event of a subsequent dividend distribution, share buyback or capital reduction, this reserve would become fully or partially taxable. Here too, strict conditions and restrictions apply, including in the area of employment. In concrete terms, the wage bill in 2020 and beyond shown in heading 62 should be at least 85 percent of the 2019 wage bill, in order to avoid taxation of the reconstruction reserve.
With you we are waiting to see what final form the arrangements will take, based on the bill to be submitted to Parliament after receiving the opinion of the Council of State. This means that the above measures can still be adapted during the bill's passage through Parliament. We will inform you as soon as more information is available.