COVID-19 #16 Change of control – impact on tax attributes


A staggering US$2,500bn. That’s the estimated ‘dry powder’ currently held by private equity firms at a global level. Although a lot of that money is likely to be invested in businesses that are coping (reasonably) well with the ongoing crisis, troubled sectors may nonetheless see a greater deal of activity as they may present opportunities for distressed M&A or good bargains. Distressed M&A, while presenting interesting opportunities, brings its own set of challenges and should not be approached as a traditional acquisition. The negotiating positions are very different and risk appetite is a prerequisite for such activities.

One of the tax considerations in a distressed M&A context is the future use of tax attributes. Indeed, change of control legislation may have a huge impact on the effective future tax rate of the acquired business.

Item #16: Change of control – Impact on tax attributes

In Belgium, certain tax attributes – such as carried forward tax losses – that are available prior to a change of control, can no longer be offset against current year (nor future) tax profits, unless the change of control is supported by legitimate financial or economic needs.

A change of control can generally be described as the power to exercise a decisive influence on the appointment of directors as well as the orientation of the management, e.g. when the shares of a company – and voting rights – are transferred to a third party.

Upon a change of control there will be full forfeiture of tax attributes, unless the company is able to demonstrate that the change of control meets legitimate financial or economic needs, i.e. is not tax driven. Contrary to other jurisdictions, the Belgian change of control rules are subject to a business purpose test. This means that taxpayers and the tax authorities may have a different perspective on whether the rule applies or not.

As the application of the change of control rules very much depend on the practical circumstances – whilst the burden of proof of future use of the tax attributes lies with the taxpayer – it will be no surprise that many companies that wish to acquire a target company with significant tax attributes request for upfront certainty through a tax ruling. However, the haste of a transaction – and in particular a distressed one – may prevent seeking for advance clearance.

If there is no time to reach out to the ruling office, companies are encouraged to document the legitimate financial or economic needs in a defence file. Various aspects should be considered, such as pre-deal and post-deal activities / functionalities / risk profile of the target company, foreseeable acquisitions and divestments, impact on employment, etc. Other elements, such as determination of the sales price, may also be important aspects for the tax authorities to assess the business drivers for the transaction at the occasion of a tax audit.

Finally, in the context of a cross-border transaction, it should also be investigated whether the transaction becomes reportable, if the target has tax attributes carried forward.

While most companies have applied for the various COVID-19 measures available by now, we see that quite some groups still struggle to monitor closely their short-term (and certainly mid-term) cash position and are uncertain how to manage and optimise their situation to steer their company through this crisis in the best way possible. We have created an email platform ( in order to give companies a sounding board in these challenging times.