The government introduced draft legislation that proposes additional relief measures to address the economic consequences of the coronavirus (COVID-19) pandemic.
Among the proposals are measures to allow the carryback of losses related to COVID-19 and to provide a reserve fund for equity reconstruction.
Carryback of losses related to COVID-19
Businesses (whether subject to individual (personal) income tax or to corporate income tax) would be allowed to carry back estimated losses due to the COVID-19 crisis from the income year 2020 and to apply the loss carryback against taxable revenue for the income year 2019. This measure is intended to allow faster refunds of tax prepayments or to pay less taxes for assessment year 2020.
The carryback could not be greater than the taxable profit of income year 2019, and would be limited by or subject to a “double ceiling”—that is, limited to the losses for income year 2020 and a maximum amount of €20 million.
The estimated loss would need to be as close as possible to the actual loss with a maximum tolerance of 10%. The amount of difference exceeding that tolerance would be subject to tax at a higher rate in the following year (ranging up to 40% depending on the amount of the excess).
A specific provision would aim to eliminate the possible benefit of the reduction of the corporate income tax rate to 25% as from assessment year 2021.
Reserve fund for equity reconstruction
As proposed, for the next three years following income year 2020, a measure would help companies regain the equity lost during the COVID-19 crisis. Companies would be able to allocate part of their profit to an exempt “reserve fund for equity reconstruction.” This reserve fund would be an intangible reserve, with a maximum amount also subject to a “double ceiling”—either the accounting loss of income year 2020 or €20 million.
The reserve fund would also be linked to the company’s employment payroll. Personnel costs for income year 2020 and the three following years would have to equal at least 85% of the personnel costs paid in 2019. If not, a pro rata portion of the reserve fund would be taxable.
Both measures would be subject to certain conditions to limit the ability of businesses to extract cash, such as by means of dividend distributions, capital reductions, share buy-backs. Also, there are measures to limit the relief if the business engages in transactions with tax haven jurisdictions or transactions that lack economic substance.
Read a June 2020 report prepared by the KPMG member firm in Belgium
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