As the effects of the current crisis reverberate throughout the global economy, it is obvious that not every business or geography has been hit equally. The same holds true for companies within a group – and even for business units within a company.
Absent a tax loss carry-back system in Belgian tax law (except for some agricultural companies in very specific circumstances), groups are looking for tax consolidation to equate their cash tax out with the corporate income tax due on their consolidated Belgian results. The group contribution regime that is applicable as of tax year 2020 – for accounting years starting at 1 January 2019 or later – may offer some much-need relief in this respect.
Item #11: Group contribution for companies in temporary financial distress
The group contribution regime allows for a transfer of profits from a Belgian profit-making entity to another Belgian loss-making entity, with the aim of offsetting the profits of the former with the current year losses of the latter. Whilst the principle can only be acclaimed, the effectiveness of the regime is unfortunately delimited by qualitative and quantitative conditions. The most important one being the requirement that both entities must be related for an uninterrupted period of at least 5 years, which represents ages in today’s fast paced reality.
These restrictions e.g. imply that no group contribution is available for recent bolt-on acquisitions, after intra-group restructurings (although some exceptions apply), in years of divestment, for multi-layered groups, for entities held by a common non-EEA parent company, etc.
The group contribution regime may on the other hand offer relief under certain circumstances in case of liquidation of a foreign entity in a cross-border context.
For Belgian entities receiving income from abroad (incl. interest or royalties) it may be worthwhile reminding that the receiving entity cannot offset foreign tax credits or deemed withholding taxes against the taxable basis created by the contribution regime.
While the group contribution regime can reduce tax cash out within a Belgian group context, the measure stops short from full tax consolidation and offers only limited relief when transactions or reorganisations have occurred in the five preceding years.
In these instances, taxpayers may still be incentivised to seek for other ways to realign the tax cash out with the tax charge on their consolidated results.
When thinking of measures the Government could consider to facilitate Belgian companies in these difficult times, limiting the holding period would certainly be sensible. Making the holding period intentional (meaning you can claim the benefits of the contribution regime as from day 1 so long as you can demonstrate that you comply in future years with the holding period) and limiting the holding period to 2 to 3 years is worthwhile considering.
While most companies have applied for the COVID-19 measures available by now, we see that quite some groups struggle to monitor closely their short-term (and certainly mid-term) cash position and how to manage and optimise it further to steer their company through this crisis in the best way possible. We meanwhile have created the following email platform: firstname.lastname@example.org in order to give you a sounding board in these challenging times.