Carried forward tax losses of both the absorbed and absorbing company are subject to limitation upon a tax neutral merger. As regards tax losses of the absorbing company, it is generally accepted by tax practitioners that the loss limitation rule only applies to prior year tax losses (i.e. losses reported in the latest tax return of the absorbing company prior to the merger) and not to current year tax losses. Although this is incontrovertible for mergers with retrospective effect until the beginning of the taxable period, it has led to discussions between taxpayers and the Belgian tax authorities for mergers without such retroactivity.
About 2 years ago, the Court of Appeal of Antwerp surprisingly subscribed the tax authorities’ viewpoint, which led to criticism in legal doctrine. In a recent decision, the Supreme Court ruled that the loss limitation rule upon tax neutral mergers only envisages prior year tax losses. The Supreme Court fails to see how current year tax losses would be caught by the loss limitation rule.
Hence, the Supreme Court annulled the judgement from Court of Appeal and referred the case to the Court of Appeal of Brussels.
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