A tax group grows substantially over the years. After expanding with a profitable company, the parent company wants to set off old losses. The tax authorities refuse to do so. According to the inspector, you first have to look at the result of the original group of companies. That group makes a loss as a whole, so there is no room for loss relief. The court disagrees.
From loss to gain
The parent company has formed a fiscal unity for corporate income tax purposes since 2015. That fiscal unity is extended several times over the years. In 2016, another existing fiscal unit is added. In 2017, the combined group suffers a substantial loss of over €550 million. In 2019, the parent company again adds companies to the fiscal unity. One of the companies turns out to be particularly profitable. In 2020, the entire fiscal unit makes a profit of €202 million. That profit comes almost entirely from the company added in 2019.
Offsetting old losses
The parent company wants to set off the 2017 loss against the 2020 profit. This can only be done with profits attributable to the companies that were already part of the fiscal unity in 2017. However, the parent company itself makes a loss in 2020. The other companies from 2017 together do make a profit. The parent company deducts its own loss from the profit of the company joined in 2019. This leaves the other companies' 2017 profits available for offset against the 2017 loss. The inspector does not accept this practice.
Inspector uses cluster approach
The inspector applies the so-called cluster approach. That approach means that you consider all companies that belonged to the fiscal unity in 2017 as a single entity. That cluster makes a net loss in 2020. So there is no profit available to offset the 2017 loss against. The inspector relies on a 2024 policy decision. The parent company appeals.
Court: no mandatory rule
The court does not follow the inspector. The Fiscal Unity Decree does not mandatorily prescribe the cluster approach. The word 'also' leaves room for a different approach. The explanation limits the cluster approach to the question of whether there are prefixation losses. It does not extend to the determination of profits available for set-off in the year of set-off. An example from the parliamentary history supports that explanation.
Purpose of horizontal loss relief
The purpose of horizontal loss relief is to avoid offsetting losses in excess of the profits reflected in the tax unity. The parent company's approach meets this requirement. It does not offset more than the profits of the tax unity. There is no impermissible cross-loss set-off. The 2024 policy decision dates from after tax year 2020 and cannot help the inspector.
Substantial reduction in taxable amount
The court upheld the appeal. The taxable amount drops from €197 million to €59.5 million. The loss settlement decision is set at €142 million instead of €4.5 million. The inspector can still appeal.