Limitation of tax losses in case of partial demerger

Nancy De Beule 18 June 2019


A partial demerger is a transaction whereby part of the assets and liabilities of the partially demerged company are transferred to another (acquiring) company, which (in principle) issues shares to the parent company of the partially demerged company.

In case of a tax-neutral partial demerger, the carried forward tax losses of the partially demerged company are split between the partially demerged company and the acquiring company.

Since the transaction is tax-neutral, such split should in principle not give rise to the forfeiture of any tax losses available before the transaction in the hands of the demerged entity. However, the tax authorities take the position that in certain circumstances the carried forward tax losses of the partially demerged company are entirely lost (i.e. nothing transferred to the acquiring company and nothing maintained by the partially demerged company).

Based on a recent decision of the Belgian Supreme Court (25 January 2019), arguments could be developed to defend that the ‘carried forward’ tax losses of the partially demerged company are those at the latest financial year-end, which could be helpful to defend that all tax losses realized during the financial year in which the partial demerger took place should be entirely maintained.

 

Should you have any questions, please contact Christophe Rapoye (christophe.rapoye@pwc.com) or Nancy De Beule (nancy.de.beule@pwc.com).