COVID-19 #4 Sale-and-lease-back to generate cash


Over the last week, we informed you about unexpected tax cash out effects from debt waivers, pitfalls relating to capitalising companies in financial distress and tax challenges of changing financing terms.

As countries are preparing for longer lockdown periods then initially anticipated, it will not come as a surprise that many companies are trying to optimise their cash position. They are busy projecting how much cash will be left after this health crisis or how much will be needed to survive the next few months. Cash is king… more than ever before. In the next few days, we will be discussing both low impact and high impact initiatives to recalibrate your cash position.

Item #4: Improving your cash balance by a sale-and-lease-back

We are starting this sequence with a big impact item. In order to enhance liquidity to re-invest in the core business, companies may envisage a sale-and-lease-back of their equipment or real estate. The larger the value of the property, the bigger the cash generation. The lower the book value of the transferred asset, the larger the possible capital gain resulting from the transaction. However, the effectiveness of the measure is also directed by careful implementation to avoid adverse (cash) tax consequences.

From a(n) (BE GAAP) accounting perspective, a sale-and-lease-back results in the leased asset to be recognised on the balance sheet of the lessee against a long-term payable, only if the instalments recompile the total capital – incl. interest and transaction costs – invested by the lessor (i.e. full-pay-out lease). As the (monthly) instalments consist of both capital and interest, these payments have both a balance sheet impact (capital component) and P&L impact (interest component). More importantly in the context of cashflow management (especially if the capital gain is quite sizeable), any capital gain realised upon the sale is recorded in the transitory accounts and hitting the P&L a rato of the depreciation of the leased asset.

In the event of a non-full-pay-out lease (or sale-and-rent-back transaction), the leased asset will however not be capitalised in the books of the lessee. All rental payments are recorded in P&L. Contrary to a sale-and-lease-back transaction, the gain on the sale is not deferred accounting wise.

From a tax perspective, capital gains on assets are in principle subject to a(n) (immediate) 25% corporate income tax rate, consuming a substantial portion of the cash generated by the sale. However, provided that the taxpayer explicitly opts for the specific tax deferral regime, the capital gain will only be taxable in function of the depreciation rhythm of the reinvested asset. In order to qualify for this deferral regime, the transferred property should have been held for more than five years and the full sales price should be reinvested in qualifying assets (i.e. tangible or intangible fixed assets eligible for tax depreciation) within 3 years to 5 years (depending of the nature of the reinvested assets).

Although a taxpayer is free in deciding which assets to qualify as reinvestment assets, in the event of a sale-and-lease-back transaction, the leased asset is mostly considered as reinvestment asset. This typically results in the taxable portion of the capital gain to be sheltered by the depreciations on the leased asset. For sale-and-rent-back transactions, a deferral of the taxation of the capital gain will hence require that the lessee can identify other qualifying reinvestment assets within the reinvestment period (as the rented asset will not qualify).

As for assets that have not been held for a period of 5 years before engaging in a sale-and-lease-back transaction, questions arise as to the tax treatment of the capital gain (and more in particular as to the timing of taxation). If one accepts the primacy of accounting law, arguments may be available to claim a tax deferral even if the 5 year period is not yet met.

Apart from the corporate income tax aspects, VAT and – possibly – real estate transfer tax should be duly considered in this type of transaction. Since the ECJ judgment from April 2019 (click here), VAT leakage may be further minimised, making these sale-and-lease-back transactions even more effective than what they were during the financial crisis of 2008.

As is clear from the above, the accounting treatment is particularly relevant to come to the correct tax determination.

Should you have any questions in this respect, please contact us.


While most companies have applied for the COVID 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: in order to give you a sounding board in these challenging times.