As an immediate response to the COVID-19 outbreak, the Belgian federal, regional and local authorities introduced tax measures in order 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).
On 18 June 2020, the Belgian parliament adopted a Law which introduces additional tax measures to support businesses after the COVID-19 crisis. It concerns a carry-back mechanism for losses incurred during the crisis, both for self-employed businesses and corporate taxpayers.
Below is an overview of the 'corona loss carry-back' regime for corporate taxpayers.
The 'corona loss carry-back' for corporate taxpayers
Corporate taxpayers will be able to compensate losses incurred in the 'corona financial year' with the taxable result of the 'pre-corona financial year'. There is no need to prove that the losses are directly linked with the corona crisis.
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.
Given that the corporate tax rate has reduced over recent years, the law also includes a mechanism to compensate for such rate differential. Making use of the loss carry-back will thus not lead to income becoming taxed at a lower rate.
Companies that make equity distributions or have a link with tax-haven companies will not be eligible for the regime (or may lose the regime if claimed).
The corona loss carry-back provides significant liquidity support to taxpayers hit by the crisis. The measure will in particular be relevant for fundamentally healthy companies that are faced with a significant drop in turnover or increase in costs.
However, as losses can only be carried back to the immediately preceding financial year, some companies will not be able to benefit from this measure to the fullest extent. This may especially be the case for companies with a financial year that closes in the middle of the crisis: the financial year that is mostly hit by the crisis (e.g. starting on 1 April 2020) may follow a year that was already affected and therefore ended with a small or zero tax base; in such case the significant Corona losses cannot be effectively carried back.
Furthermore, while the underlying principle is simple, the loss carry-back turns out to be rather technical and complex. Taxpayers should carefully consider various aspects before making use of it, eg.:
- the calculation of the additional tax that may be triggered if the 'corona losses' are overestimated;
- the interaction with other corporate tax regimes such as the interest limitation rule and the group contribution regime;
- the fact that the regime is not available (or may be forfeited) in case of a dividend distribution or a link with a tax haven company.
More detail on the corona loss carry-back for corporate taxpayers can be found in this briefing note.
Exemption for post-corona reserved profits put on hold
In the initial law proposal, the corona loss carry-back was accompanied by another significant support measure for corporate taxpayers: the co-called ‘reconstitution reserve’, being a tax exemption for post-corona reserved profits.
This second measure was withdrawn from the draft law and it is currently unclear whether it will turn into law.
the loss carry-back turns out to be rather complex. Taxpayers should carefully consider various aspects before making use of it