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Temporary tax loss carry back available

The Economic Strengthening Act 2020 created the possibility of a temporary tax loss carry back. In this context, the corresponding ordinance was recently issued, which defines further details of the tax loss carry back. The main aspects are summarised below.

1. COVID 19 reserve for 2019

In order to create positive liquidity effects before the 2020 assessment is carried out, expected operating losses in 2020 can already be taken into account in the 2019 assessment when determining the total amount of income through a special deduction item (COVID 19 reserve).

The use of the COVID 19 reserve is based on the assumption that the total amount of operating income will be positive in 2019 and probably negative in 2020. The total amount of business income is the balance of the profits and losses from financial years ending in the respective calendar year which are taxable under the tariff.

The COVID 19 reserve reduces the total amount of income in 2019. Apart from that it does not affect the amount of business income (this is particularly important for linking the SV contributions.

The COVID 19 reserve amounts to:

extent

requirements

cap

up to 30% of the total positive amount of business income in 2019

  • without further proof
  • if advance payments 2020 are EUR 0,- or only minimum tax is due (corporation)

EUR 5 Mio

up to 60% of the total positive amount of business income in 2019

expected negative total amount of business income in 2020 must be substantiated

EUR 5 Mio

The COVID 19 reserve can be used on an application basis. If the respective year has already been assessed with legal effect, the application is considered as retroactive event. In this case, a corrected assessment can therefore be made. Due to its design, the COVID 19 reserve should be usable by every taxpayer, both in terms of its reason (due to the obligation to apply) and its amount (due to the wording „up to … %“).

The use of the reserve reduces the total amount of income in 2019 and would therefore have to take precedence over losses carried forward from previous years (for corporations, the limit on losses carried forward would have to be calculated from the total amount of income after deduction of the COVID 19 reserve).

The COVID 19 reserve taken into account in the assessment in 2019 is to be recognised in the assessment in 2020 as an income-increasing additional item when determining the total amount of income. This is intended to prevent losses being taken into account twice. The additional item does not affect the amount of operating income.

2. Tax loss carry back for 2019 and 2018

A tax loss carry-back in previous periods is possible upon request under the following conditions as a retroactive event. The application is expected to be submitted using a structured form that will be linked to the tax return 2020. The Federal Ministry of Finance should subsequently clarify that the 75% loss offset limit for tax loss carry back does not apply to corporations. Insofar as losses from the assessment 2020 are not taken into account in the assessment 2019 or 2018, they can be used as a normal tax loss carry forward deduction from the assessment 2021.

a.) Tax loss carry back 2019

The tax losses of 2020 remaining after the assessment of 2020 after addition of the COVID-19 reserve can be carried back to 2019. This does not affect the recognition of the COVID 19 reserve. There is a cap of the tax loss carry back (together with the COVID 19 reserve) with EUR 5 Mio.

b.) Tax loss carry back 2018

If the assessment 2019 does not fully exhaust the tax loss carry back from 2020 to be taken into account in the assessment 2019 (e.g. insufficient operating income in 2019), an application may be made to take the tax loss carry back into account in the assessment 2018. There is a cap of the tax loss carry back with EUR 2 Mio.

3. Outlook

The main framework conditions for tax loss carry back have now been regulated. However, the ordinance still leaves room for doubt. For this reason, further developments remains to be seen (e.g. incorporation of the regulations concerning the COVID 19 reserve and tax loss carry back into the income and corporate income tax guidelines).

 

Authors:

Christoph Puchner, Managing Director and Tax Advisor & David Gloser, Partner, Chartered Accountant and Tax Advisor from ECOVIS Austria.