The early repayment of carry-back receivables
Newsletter - August 2020
Under the terms of the third amending finance law of 2020 all companies may obtain early repayment of the receivables arising from the carrying back of deficit amounts ( ‘ carry-back ’ ) in order to improve their cash flow situation.
The current scheme for carrying back deficit amounts
It will be recalled that the deficit recorded at the end of a financial year may be set off against the profit recorded for the previous financial year, with the set-off amount limited to the non-distributed part of said profit. The set-off is also limited to either the profit declared for the previous financial year or one million euros, whichever amount is the lower. This scheme, which is set out in article 220 (v) of the General Code of Taxation, only extends to companies subject to corporation tax.
The set-off implemented creates a receivable against the Treasury equal to the excess tax previously paid, which may be used to pay the corporation tax for the financial years ending during the five calendar years following the one that contains the end of the financial year for which the option was exercised.
If there is no use of the receivable facility in the course of these five calendar years, the companies are entitled to obtain a repayment of the receivable at the end of this period. There is however an exemption from this rule for companies in difficulty, which may request early repayment of their carry-back receivables when they become the subject of protective measures, administration or judicial liquidation.
Key features of the new early repayment scheme
A temporary exemption from early repayment has been adopted, covering carry-back receivables arising from an option for the carry-back of deficits being exercised at the end of financial years 2015, 2016, 2017, 2018 and 2019, as well as receivables recorded for a financial year ending by the 31st December 2020.
The companies may still choose not to request early repayment of their unused receivables in order to continue charging them against subsequent corporation tax.
If the early repayment request relates to receivables arising from an option exercised at the end of financial years 2015, 2016, 2017, 2018 or 2019, it must be made by the deadline for filing the declaration of results for the financial year ending 31st December 2020, i.e. in practice by the 19th May 2021.
If the early repayment request relates to a receivable arising from an option that has been (or will be) exercised for a financial year ending in 2020, the companies may seek early repayment, without waiting for the settlement of corporation tax, at any time following the day after the end of the financial year. Exercising the option of carry-back ahead of time (and requesting repayment of the receivable) presupposes that the company is in a position to reliably estimate the result for the financial year ending in 2020.
In the event of an over-valuation of the receivable repaid for the financial year ending in 2020 by over 20 %, the company concerned will have to pay the lateness interest provided for in article 1727 of the General Code of Taxation (0.20 % per month), plus the surcharge of 5 % of the excess amount unduly paid, as stipulated in article 1731 of said Code.
The specific case of integrated groups
Like any other company, the lead company in an integrated group may obtain early repayment of unused receivables, arising from the carry-back of overall deficits from financial years 2015, 2016, 2017, 2018 or 2019, as well as receivables recorded for a financial year ending by the 31st December 2020. The scheme also covers receivables arising from the carry-back of specific deficits from the parent company for financial years prior to creation of the integrated group.
In the event of the inclusion on the group leader’s balance sheet of a carry-back receivable from a subsidiary arising from a financial year prior to creation of the integrated group, the request for early repayment of said receivable must be made by said integrated group leader.
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