At the beginning of this week, on 5 October, the Dutch Ministry of Finance submitted a proposal to parliament regarding changes to the loss compensation rules for Dutch corporate taxpayers.
The proposed changes to the loss compensation rules apply as of 1 January 2022 and can be summarized as follows:
- The carry forward of tax losses will no longer be restricted in time and losses can be carried forward indefinitely (currently 6 or 9 years)
- However, utilization of tax losses will be restricted on an annual basis, in the sense that taxable profits in excess of EUR 1 million may only be offset up to 50% of profits
- Tax losses incurred prior to 1 January 2022 and still available in 2022 are also subject to the new rules (hence tax losses of 2013 and subsequent years can be carried forward indefinitely)
- The carry back period will remain one year, but the carry back will also be subject to the restriction that taxable profits in excess of EUR 1 million may only be offset up to 50%
We note that concurrence of the proposed changes has been addressed with regard to liquidation loss rules, the recapture of foreign losses and the specific rules for holding and financing companies. To the extent that tax losses are set-off that partially qualify as holding and financing losses, the annual restriction criteria are to be applied on a separate basis. More specifically, the EUR 1 million or 50% of profits restrictions are to be applied to both the part that qualifies as holding and financing losses and to the part that qualifies as other losses. Other concurrent areas, such as rules regarding fiscal unity loss compensation and the waiver exemption have not been addressed yet.
For completeness sake we note that these proposed changes only apply to corporate taxpayers.
It is expected that the proposals will be adopted before the end of this year (but will become effective in 2022). To the extent that the proposed changes affect your company, we advise to consider:
- what can be done in order to mitigate potential adverse effects of the expected future annual loss compensation restrictions; and
- to consider to what extent the proposed change of loss utilization legislation would impact the recognition of deferred tax positions in the financial statements. Assuming (substantive) enactment of new loss utilization legislation still in 2020, proposed changes may affect the financial statements 2020.
Of course we would be more than happy to assist you in this respect. Please don't hesitate to contact us if you have any questions.