Losses should only be taken when the facts occur. Prudence is fine, but the tax authorities charge based on what you know on the balance sheet date. Not based on what you later turn out to know.
Wellness centre goes bankrupt
A holding company, through a subsidiary, owns business premises in which a wellness centre is operated. The property is listed on the balance sheet for almost €4 million. In 2019, the wellness centre goes bankrupt, after which the subsidiary sells the property for €2.9 million. Just before delivery in 2020, the price is further reduced to €2.5 million, as the buyer had discovered that the development potential was disappointing.
Can the loss be brought forward?
The holding company does not want to take the loss in 2020, but in 2018. By then, it was already clear that the wellness centre was doing badly and that the property would be sold well below book value. The inspector refuses to do so. The subsidiary that owns the property still exists. There is no reason to depreciate to some kind of liquidation value. The fact that the tenant's bankruptcy was imminent is insufficient.
Error theory offers no way out
The holding company is also trying through a different route. It argues that too little was written off in previous years and that this must now be made up. The court does not find this convincing and rules that the holding company has not made it plausible that mistakes were made. A somewhat more prudent depreciation policy is not an error that may be corrected later.
What about 2019?
For 2019, the holding company wants to write down to €2.5 million: the price at which the property was eventually sold. The inspector only accepts depreciation to €2.9 million: the price in the 2019 purchase contract. This is because the further price reduction did not come until 2020. The court follows the inspector. On 31 December 2019, there was no reason to believe that the price would fall. That knowledge only came later.
Still partially right
The holding company is not completely empty-handed. The inspector was found to have assumed an overstated book value in the 2019 assessment. After adjustment, a loss of over €1 million remains. The assessment is reduced to nil.