Tax tools to beat the crisis

Useful tax tips, creating temporary and permanent relief, improving your cash flow position and ensuring an efficient tax structure in these difficult times.

1. Losses incurred now can be used to reduce the corporate income tax paid by a company when it is making profits again. This “loss carry forward” can evaporate in the event of liquidation, mergers, sale of company, admission of new investors, internal reorganizations, etc.
2. Valuation of your assets and liabilities can be crucial. The timing of certain amortizations and depreciations, and making appropriate provisions can influence the level of costs/losses. It is better not to have too many loss carryforwards, as they can expire. By making use of flexible amortization rules, turbo amortization may be possible for certain assets.
3. Developments in Europe and pending cases at the European Court of Justice might also apply to you. Payment extensions may be granted pending an appeal and may even result in a permanent benefit depending on the outcome of the case. There is currently a case pending on VAT corrections related to private use of company assets (‘BUA'). For the cost of a stamp, your company may be safeguarded, tagging along with the outcome of the European court. Check with your tax lawyer to see if any cases apply to you.
4. Use losses as efficiently as possible. It is sometimes better to have a small loss in all companies, than a big loss in one company and profit in the others. In some situations losses can be used in more than one country. Through simple structuring tools, cross-border loss compensation may also apply. This area is moving rapidly and it is advisable to check each year whether use of losses in another country may be applicable. Where there is a permanent establishment abroad, losses can generally be used in the country of the headquarters. Don't forget about liability matters when choosing between a subsidiary and a permanent establishment.
5. If a Dutch entity or foreign subsidiary is liquidated, liquidation loss may be taken. Size and timing are situation specific; continuing activities within the group can influence timing of the loss. Make sure you have a record of the acquisition costs and contributed capital (”sacrificed amount”) of the subsidiary to provide as evidence of the size of liquidation loss to be claimed. Internal reorganization and sales within the group can reduce the “sacrificed amount”, but never increase it.
6. Make sure estimated tax assessments are in line with profit (or loss) forecasts, so you don't grant an unintentional loan to the tax authorities.
7. Determine the advantages of fiscal unity (fiscal integration). Profits and losses can be offset within the group, but the reduced tax rate (20% instead of 25.5%) can only be used once for profits up to €200,000 and companies in fiscal unity have joint and several liabilities for the taxes of other members.
8. Determine your funding method: equity versus debt. If interest payments are not deductible because of a loss, it may be smart to determine whether conversion into real or hybrid equity would improve the overall tax leakage for the group.
9. Pricing has changed a lot recently so review transfer prices.
10. Cash can be generated by off-balancing certain assets. Banks are hesitant to grant a line of credit, but it is still possible.
11. Determine whether subsidiaries qualify for participation exemption. If this is not the case, losses may be used by the Dutch parent. Do not automatically make use of the grandfathering rules to get participation exemption.
12. Make sure your books are in good order. Bad accounting such as failing to follow certain pricing positions can impact the determination of tax for the company and even result in liabilities for board members.
13. Be aware that the waiver of a claim can have negative consequences for the debtor if it is not done properly (profit realization).
14. Check your VAT position, timing of filing, payment and claim. It may be possible to get accelerated refunds. Check incoming invoices: payment of VAT that was not correctly invoiced is not refundable. If invoices are not paid (which happens more frequently in times of crisis) the VAT already paid to the tax authorities may be reclaimed once it is obvious that payment of the invoice can not be expected.
15. If you have employees on the payroll check whether you can get reduced payments for social security premiums. Make sure the sector classification is correct (premiums in construction companies might not apply to administrative functions). There are reduced premium obligations for employees of 50 years or over and employees that work in a research capacity.

Willem Bongaerts, Senior Associate (tax planning), Loyens & Loeff, Eindhoven