LOSS SET-OFF CORPORATE INCOME TAX

PREFACE

As a result of the Dutch Tax Plan 2021, the loss settlement rules regarding corporate income tax will change.
 

CURRENT LOSS ALLOCATION

Losses of a company can be set off against profits of that company within the loss settlement periods. Losses are settled in the order in which they arise. The amount of the losses is not important in that respect.

Currently, the loss set-off regarding corporate income tax amounts to 1 year backwards (carry-back) and 6 years forwards (carry-forward). The carry-forward term of losses incurred up to and including 2018 is 9 years. The following applies:

Loss suffered in                Settable up to

2016                                       2025
2017                                       2026
2018                                       2027
2019                                       2025
2020                                       2026
2021                                       2027

As a result of this effect, the losses of 2016 are first settled, then those of 2019, then those of 2017, etc.
 

LOSS SET-OFF AS FROM 1 JANUARY 2022

Due to the change in the loss settlement rules, the losses can be carried forward indefinitely as from 1 January 2022. The term is therefore extended.

However, there is a limit to the amount of the losses to be offset.
Losses up to €1,000,000 are fully deductible from the profit.
Losses in excess of €1,000,000 can only be settled for 50% against the remainder of the taxable profit.

Example
With a deductible loss of €3,000,000 in 2022 and a profit of €4,000,000 in 2023, tax is payable in 2023 on an amount of €1,500,000. In the "old situation" tax was due on €1,000,000.

In the new situation, a total of €2,500,000 in losses will be settled in 2022.
The remainder of the loss (€3,000,000 - / - €2,500,000 = €500,000) can be settled in subsequent years.
 

SMES

The change in the loss setoff regarding corporate icome tax is one of the recommendations of the Advisory Committee on Taxation of Multinationals (Ter Haar Committee).

It is therefore expected that SMEs in particular will benefit from this change. After all, losses within SMEs will usually amount to less than €1,000,000, which means that unlimited loss carry forward can take place.
 

FINALLY

Do you have any questions about loss set-off in corporation tax in response to this article? Or do you have questions regarding your company? Please contact your contact person within ESJ!