As an immediate response to the COVID-19 outbreak, the Belgian federal, regional and local authorities introduced several tax measures to relieve pressure on business cash flows during the crisis, such as a deferral of tax payments. (For an overview, see our COVID-19 global tax measures guide (PDF).)
To further bolster the liquidity of corporate taxpayers and restore solvency positions after the COVID-19 crisis, the Belgian government has agreed two important additional corporate tax measures: a carry-back mechanism for losses incurred during the crisis and a tax exemption for post-crisis reserved profits.
The measures need to pass the ordinary legislative process before coming law.
The 'corona loss carry-back' in a nutshell
Corporate taxpayers will be able to compensate losses incurred in the 'corona financial year' with the taxable result of the 'pre-corona financial year'.
As a result, the tax bill relating to the pre-corona financial year is reduced and already-paid taxes will be reimbursed, thus providing immediate liquidity to taxpayers.
Technically, the regime is claimed by constituting a temporary tax-exempt reserve equal to the estimated 'corona losses' in the pre-corona year. The reserve is then reversed in the corona financial year; the resulting increase in the tax base is compensated with the corona losses.
The maximum amount of the loss carry-back is €20m. Also, taxpayers who overestimate their 'corona losses' by more than 10 per cent will be penalised through a special additional tax.
Companies that make equity distributions or have a link with tax-haven companies will not be eligible for the regime.
The reconstitution reserve in a nutshell
Corporate taxpayers will be able to restore their solvency position after the corona crisis by creating a reconstitution reserve out of profits in any of the following three years. This reconstitution reserve is and remains tax-exempt, subject to certain limitations and conditions.
The maximum amount of the reconstitution reserve is €20m.
Companies that make equity distributions or have a link with a tax-haven company are not eligible for the regime; a previously claimed reconstitution reserve by such companies may become (partially) taxable.
Companies that have significantly reduced their personnel cost compared to the pre-corona period may also see part of their tax-exempt reconstitution reserve become immediately taxable.
The 'corona loss carry-back' and the reconstitution reserve will provide significant relief to companies that incurred losses in the corona-crisis period.
This presupposes, however, that such companies were profitable in the pre-corona financial year (regarding the corona loss carry-back) and/or return to profitability in the years after the crisis period (regarding the reconstitution reserve).
The rules are rather complex, so taxpayers should carefully consider various aspects before making use of them. Also, taxpayers should take into account the interaction with other tax measures, such as Belgium's tax consolidation regime.
You can find a detailed overview of the 'corona loss carry-back' and reconstitution reserve in this briefing (PDF).
Please reach out to the author or your usual Freshfields contact if you have any questions regarding these topics.
The tax recovery measures will provide significant relief to Belgian taxpayers that (temporarily) suffer losses as a result of the COVID-19 crisis. The rules are however rather complex, and taxpayers should consider various aspects before making use of them