Belgium: Proposed changes regarding deduction of foreign losses

Draft legislation would adjust the recapture rule so that it only applies if the foreign losses had been deducted from Belgian profits.

Draft legislation would adjust the recapture rule

Proposed legislation would revise the corporate income tax rules regarding the deduction of foreign losses.

The draft legislation also contains other tax measures—mostly technical corrections. 

Background

The corporate tax reform of 2017 included new rules regarding the deductibility of foreign losses.

Under the 2017 tax reform, losses from foreign permanent establishments (PEs) or assets from which the profits are exempt in Belgium are no longer deductible, with the exception of final losses within the European Economic Area (EEA). The new rules apply to losses from tax periods beginning from 1 January 2020.

Losses from before 2020 remain deductible, but subject to recapture. As a result of the tax reform, the recapture rule was rewritten. However, a literal reading of this recapture rule seems to imply that only losses that are carried forward are targeted, and depending on the interpretation of the new rule, there may not be a corresponding adjustment of the Belgian taxable base after all. As a result, the double deduction may not be eliminated.

Proposed changes in draft legislation

The draft legislation would adjust the recapture rule so that it only applies if the foreign losses had been deducted from Belgian profits (or from profits that are not exempt by treaty).

Also according to the draft legislation, losses from treaty-partner countries from periods before 1 January 2020 would be excluded from the deduction if the taxpayer could not demonstrate that the losses have not been deducted from foreign profits. These losses would only be deducted to the extent they exceed treaty-exempt profits (but not to be performed on a country-by-country basis).

If a company—after the deduction of final losses—restarts activities within three years from the date when the losses were incurred, then those losses would be included again in the taxable base. The draft legislative proposal provides that this is only the case insofar the loss has been deducted from taxable profits. The remaining losses that have not yet been deducted would be excluded from the later deduction. Final losses would also only be deducted to the extent they exceed treaty-exempt profits.

All new rules are proposed to be effective from assessment year 2022 (but the current rules would have to be interpreted according to the new rules).
 

Read a June 2021 report prepared by the KPMG member firm in Belgium

 

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