Company reorganisation: one year accounting retroactivity also possible for tax purposes
Setting the date on which transactions or other activities take effect for accounting purposes is an important aspect of company restructuring. This is the date on which the transactions of the acquired company are allocated to the acquiring company for accounting purposes. Under certain conditions, this date may also be retroactive, i.e. before the date of the restructuring. Since the introduction of the Belgian Companies and Associations Code (hereinafter CAC), this retroactivity may even extend up to one year. In the meantime, more and more voices are also urging acceptance of such a period for tax matters.
Accounting and fiscal retroactivity before the new CAC
Accounting retroactivity is a method often used by enterprises in a restructuring proposal, for example to fix the same date for a merger if the merged companies have different closing dates for their financial years.
Before the entry into force of the CAC, the law did not provide for a maximum allowable accounting retroactivity. In practice, the Tax authorities held that the retroactive effect of a company deed was in principle invalid, since tax law is part of the public order. However, the Tax authorities were given room for interpretation in the application of this principle. Indeed, accounting retroactivity was deemed valid if the following conditions were met:
- the retroactivity clause must correspond to reality and must cover a short period. The Tax authorities clarified that a short period meant seven months or less. In practice, however, a longer period was allowed in exceptional cases (cross-border mergers for example); and
- this clause may not stand in the way of correct application of the law.
Anchoring in the CAC
The CAC now specifies the earliest date on which accounting retroactivity is permitted: the transaction date of the company to be acquired may not be earlier than the first day after the end of the financial year for which the annual accounts of the company involved in the transaction have already been approved.
Pursuant to this provision, it is possible to apply accounting retroactivity of (maximum) one year.
Despite the anchoring of accounting retroactivity in law, the legislator failed to create a similar provision for tax purposes.
Since tax retroactivity is purely based on administrative practice, and accounting retroactivity currently has a legal basis, the question can be asked whether the view of the tax authorities is still relevant.
In this respect, we can refer to the case law of the Belgian Supreme Court that states that tax law follows accounting law unless tax law explicitly deviates from it. Since the new provision on 1-year accounting retroactivity is an accounting rule that is supported by the CAC, in our opinion, it should be applied unless tax law explicitly deviates from this.
In our opinion, there is no such explicit deviation. In the past, the existence of an accounting retroactivity clause was also always honoured for tax purposes with a view to the public order nature of the tax law (of course insofar as the “seven-month rule” was complied with). There are also other calls to change the fiscal “seven-month rule” to the current rule of (maximum) one year as stipulated in the CAC.
In accordance with the CAC, accounting retroactivity of up to one year should be valid with respect to the tax authorities as long as the retroactivity does not take place earlier than the first day after the closing of the financial year for which the annual accounts were approved. In our opinion, this provision of company law must also provide legal certainty in tax matters for which the taxpayer in the past had to revert to the ruling commission too often.
Published in VOKA – Ondernemers, VOKA Kamer van koophandel West-Vlaanderen, editie 02 2021