Losses incurred by a private limited company are set off against profits from the previous year (carry back) and for the nine years following the year in which the loss was incurred (carry forward). For losses arising from a sole trader business, a partnership or a general partnership (VOF), the carry-back period is three years.
Losses resulting from the crisis
The economic crisis first struck in 2008. For many businesses, this resulted in one (or more) years of losses. Losses from 2008 that are still outstanding in 2017 must be offset by the end of 2017 at the latest. You then have a few months left to take action. Otherwise, once the New Year’s celebrations on 31 December 2017 are over, the loss will be lost for good.
For losses in respect of which, in 2008 was chosen In order to carry some of them back to 2005 or 2006, a shorter carry-forward period applies. These losses may be set off against the 6 (rather than 9) subsequent years. Any losses that have not been set off by then have already been written off.
Offsetting losses
What do you need to do to offset outstanding losses? It’s simple: make a profit. Naturally, this must be a taxable profit (a positive taxable amount). In cases where losses are still outstanding after eight years, this has not been achieved through normal business operations.
Revaluation
The focus then shifts to realising hidden reserves or goodwill embedded in the company’s assets and/or liabilities. Unfortunately, however, simply revaluing assets to their current value on a one-off basis is not permitted for tax purposes. This is contrary to the principle of prudent business practice.
Alternative valuation method
Switching to a different valuation method is also highly likely to meet with objections from the Tax Office. And this view is likely to be upheld by the Tax Court. After all, this would mean taxing profits for which it has not yet been established that they will actually be realised. A prudent trader is, by definition, expected to exercise caution. Incidentally, the highest tax court has not yet ruled on this matter.
Putting it into practice
The most sensible course of action is therefore to find a way to actually realise the hidden reserves in assets (and/or the goodwill). This can be done by selling the assets in which the hidden reserves are held and then leasing them back (sale and leaseback). Alternatively, by contributing them to a partnership or a general partnership (VOF). Naturally, there may be some snags involved. For instance, attention must be paid to the implications for VAT and stamp duty. Furthermore, the legal rules governing such a transfer must be observed. VWGNijhof would be happy to set all this out for you in the more than 85 days remaining in 2017.