The Belgium Government has already taken numerous measures to give financial oxygen to Belgium enterprises and families taking into consideration the ongoing corona crisis. One of the most remarkable measures is the exceptional possibility of a one-off carry-back of tax losses. You can already apply this option in the tax return that is to be filed in the course of 2020. A similar rule is foreseen for Belgium personal tax purposes. How does it work?
For the avoidance of doubt: the draft legislation at hand is close to being definitively enacted. The final texts of law are expected soon.
Belgium tax legislation is not featured by a carry-back of tax losses rule. Tax losses can only be carried-forward in time without limitation in terms of time and amount. However, the corona crisis stroke hard entailing that many companies are exposed to current-year losses as far as their financial year 2020 is concerned. Specifically, to support companies from a cash-flow perspective, they are allowed to exceptionally carry-back the “expected” 2020 tax losses in order to compensate them with financial year 2019 (tax year 2020) taxable profit. The Belgium corporate tax return for the tax year 2020 is to filed by in principle 24 September 2020. As a result, the 2019 Belgium corporate tax liability decreases for the eligible taxpayers.
Please find hereafter some best-practice guidelines in this respect:
- When making use of the carry-back of tax loss rule, no BE GAAP accounting entries are required. Only the appropriate boxes of the “tax-free reserves” as laid down in the corporate tax return of the tax year 2020 need to be duly completed.
- The financial year 2020 is obviously still running. That is why the “expected” tax losses of this financial year need to be estimated as accurately as possible. This is important, because if it appears afterwards that the actual tax loss is less than 90% of the estimated tax loss, additional tax will be due on the difference. The tax rate will vary between 2%-40% depending on the difference. The bigger the difference, the higher the tax rate.
- The Belgium corporate tax rate has decreased from 29,58% to 25% with respect to financial years 2019 and 2020. As the carry-back of tax losses may not lead to positive tax arbitrage, the 2020 taxable basis will be adjusted to neutralize the difference in corporate tax rates.
- The Belgium company at hand may have made advance tax payments in 2019 which may now end up being pointless or excessive because of the use of carry-back tax losses. As such, this should not lead to adverse tax consequences as the company will get the excessive advance tax payments back (be it interest – free …) within 2 months as of the date of the assessment notice.
- There is no impact on the BE GAAP annual accounts of the financial year 2019 which are finalized already. Indeed, a tax saving should only be recorded in the profit & loss account of the financial year in which the tax loss has been realized, i.e. financial year 2020.
- However, if the company proceeded to a dividend distribution, a capital reduction or a redemption of own shares in the period covering 12 March 2020 up till the moment when the corporate tax return for the tax year 2021 will be filed, it cannot make use of the carry-back of tax loss rule. The same applies to a company which has a shareholding in a company residing in a tax haven or to a company making tainted payments exceeding EUR 100.000 to a beneficiary residing in a tax haven.
- For completeness’ sake, the carry-back of tax loss rule can be combined with Belgium group relief for corporate tax purposes. Needless to say that this requires careful tailored planning, but also offers interesting opportunities.
The introduction of the exceptional carry-back of tax loss rule is fairly unique in Belgium, but is nevertheless highly welcomed by taxpayers in the current delicate economic circumstances. Those who want to make use of this rule, should do so by appropriately completing their Belgium corporate tax return for the tax year 2020.