Tax loss relief

Tax loss relief

In difficult times, companies might not always be profitable. The Dutch tax authority allows companies to offset the incurred losses against past and future profits under certain conditions.

This tax loss relief deduction is called carry-back and carry-forward. With regards to income tax and corporate tax, losses are to be carried back for 1 and 3 years respectively. Afterwards, any unrelieved tax loss can be carried forward for 9 years and are set off against the first available profits. However, according to the coalition agreement, carry-forward for corporate tax is planned to be limited to 6 years in the future. Concerning income tax, do take into account that taxable losses resulting from one box cannot be used to offset against a taxable profit from another box.

Although the Dutch tax authority offers these tax credits, there are anti-abuse provisions that may prohibit the utilization of tax losses relief. In general, a change of ownership might trigger the anti-abuse provision.

Carry-forward is denied if the change of the ultimate ownership is 30% or more. This is the case if shares of a company are transferred to another party and if the scope of activities is decreased significantly prior to the date of ownership change. In addition, the company’s assets also play a crucial part whether tax loss relief is applicable or not. If the company’s assets largely consist of investments, then carry-forward is denied.

After change of ownership, carry-back is not applicable if:

  • The activities of the company are terminated.
  • The total assets of the company during the year of profit or loss consisted of more than 50% investments and if those investments were owned for more than 3 months.

Carry-back is also not possible if the company started a new venture and 30% of its ownership was transferred to another party.

However, there are exceptions to these rules. Tax loss relief will not be denied if:

  • The change of ownership is as a result of either inheritance or marriage
  • The company that gains full ownership already owned at least 1/3 of the company in the year of the oldest unrelieved loss

In the case of fiscal unity, a combination of parent and subsidiary companies, the taxable profits and losses of the group companies can be offset against each other, which may lead to greater tax loss optimization.

Preconsolidation losses cannot not always be carried forward to the profits of the fiscal unity under certain conditions.

Provisional Loss Settlement ( “Voorlopige Verliesverrekening” in Dutch)
Having filed a tax return for the year that a loss is incurred, the Dutch tax authority will first impose an assessment and then issue a loss decision. Tax loss relief is only then possible. This means it can take a long time before a loss is relieved. However, a firm does not have to wait until a loss decision is issued. A provisional loss settlement can be requested right after filing the tax return. With this settlement, a maximum of 80% of the loss indicated will be settled beforehand.

For additional information or advice regarding tax loss relief and more, feel free to contact us.

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