Corporate income tax reform: tax loss relief limited to 50% of annual profits

The Dutch government has provided further details concerning a potential reform of the tax loss relief rules in the corporate income tax regime.

The proposed amendment will mean that losses can be set off indefinitely from 1 January 2022, but the number of losses that can be set off will be capped. The government had already announced the reform on this year’s Budget Day and has now submitted a Memorandum of Amendment to the 2021 Tax Plan.

Companies are currently allowed to set-off losses up to one year back (carry-back) and up to six years in advance (carry-forward). The carry-forward period of six years will be abolished from 2022, which means that losses from that date will no longer expire. However, the number of losses that may be offset within a financial year will be capped. Losses up to an amount of EUR 1 million can still be fully offset, yet losses above EUR 1 million can only be set-off against 50% of the remaining taxable profit of that year. Any residual deductible losses may be carried over to subsequent years. The limitation will also apply to the carry-back loss relief rules in corporate income tax. The period of carry-back will remain unchanged at one year.

The proposed scheme is intended to prevent profitable multinationals in the Netherlands from not paying corporate income tax for years on end. If the bill is passed, a minimum amount of corporate income tax is introduced for companies with profitable activities.

The new rules will only apply to the corporate income tax regime. The loss relief regime of the personal income tax (losses incurred by entrepreneurs in box 1 and substantial shareholders in box 2) will remain unchanged. According to the government, the group with losses above EUR 1 million in the Netherlands is limited, so that a comparable reform of the personal income tax regime will have little effect.

The Memorandum of Amendment does not include any transitional law provisions. The new regime will therefore apply to losses occurred after 1 January 1, 2022, or to losses that can still be carried forward at the end of 2021. Losses incurred before 1 January 2013 may be set off for a period of nine years, the period applicable to that time. If losses were qualified as a “holding loss” before 2019, the qualification will be retained after 1 January 2022. The Dutch government justifies not to include any transitional law as existing deductible losses will not be forfeited as a result of the proposed amendment.