New Rules on Deductible Losses
As of January 1, 2022, new loss deduction rules for corporate income tax will come into effect. This has been made public by the State Secretary of Finance. The amendment makes that as of 2022, losses can be offset for an unlimited period of time, though the amount of losses within a financial year shall be limited. The scheme should prevent profitable multinationals in the Netherlands from paying no corporate income tax for years in a row.
Dutch companies can currently offset losses for a period of up to one year back and up to six years ahead. This forward settlement limitation no longer exists as from the year 2022, so that losses no longer get lost. The current loss carry-back period of one year will remain in effect. On the other hand, there is a maximum on the loss that may be set off in a financial year. Each year losses up to an amount of €1 million can be set off against profits in full. Above that amount, the loss can only be settled against 50% of the remaining taxable profit of that year. Any remaining carry-forward losses may be carried forward to subsequent years. The limitation will also apply to carry-back losses in corporate income tax.
The change will only apply to corporate income tax. The scheme for personal income tax losses (for entrepreneurs in box 1 and substantial interest holders in box 2) will remain unchanged. According to the cabinet, this group with losses of more than € 1 million in their income tax is limited in size, so that a comparable adjustment in income tax will have little effect.
The new scheme applies to losses that arose after 1 January 2022, or that can still be carried forward at the end of 2021. The limitation will also apply to loss carry-back. Losses prior to 1 January 2013 can be offset against the nine-year term applicable up to that time. If a loss has been qualified as a 'holding loss' in the past, this qualification will also be maintained after 1 January 2022. If a taxpayer has both deductible 'holding losses' and other losses, these new rules apply separately to each of these types of losses.
Concurrence of other schemes
The new loss settlement rules will also apply to the settlement of the (pre-consolidated) losses within a fiscal unity. Since the threshold of € 1 million applies per taxpayer, this threshold can be applied only once for an entire fiscal unity. In such situations it is therefore important to determine whether it is beneficial to break the fiscal unity and then apply the threshold of € 1 million per individual entity.
Concurrence with other schemes is also possible. This includes the generic interest deduction limitation. Since a threshold of € 1 million is used under both the generic interest deduction limitation and the new loss settlement rules, it is important to examine how these schemes are related to each other.
What does this mean to you?
As of 1 January 2022, you can in principle set off taxable profits up to €1 million in full against deductible losses. If the taxable profit is more than €1 million, you can set off a maximum of 50% of the amount of profit above €1 million against the remaining deductible losses. Take an extra look in case of any concurrence with other tax regulations, such as the fiscal unity or interest deduction restrictions.
Businesses with substantial amounts of tax-deductible losses may be interested in analysing whether the losses can still be offset without any limitation before the start of the year 2022.