Changes to the Waiver Gain Exemption in the 2025 Tax Plan

Current situation and problem

The waiver gain exemption within Dutch corporate income tax (Vpb) is designed to relieve companies in financial difficulties. This exemption ensures that benefits resulting from the surrender by creditors of irrecoverable receivables are, under certain conditions, not included in the taxable profit of the debtor. This prevents companies from experiencing additional tax burden due to debt forgiveness and deters creditors from cancelling debts.

However, with the introduction of new loss relief rules from 1 January 2022, a problem has arisen. These rules limit loss relief in Vpb: losses up to an amount of €1 million are fully creditable against taxable profits each year, but above that amount, the loss is only creditable against 50% of the remaining taxable profits. This has led to situations where, despite debt cancellation, companies still have to pay corporate tax because their losses cannot be fully offset. This can be an obstacle for companies trying to recover from financial difficulties.

Proposed amendments

The Tax Plan 2025 introduces a number of changes to address this issue and bring the debt forgiveness profit exemption more in line with the new loss relief rules. The main change is that benefits from debt forgiveness will not be included in the taxable profit of the debtor if these benefits exceed the loss incurred in the same year and the losses still to be set off from previous years.

For companies with more than €1 million in offsetable losses, the remission profit is fully exempted to the extent that it exceeds the losses in the year of remission. The offsetable losses are then reduced by the amount of the exempted waiver gain. This means that companies with significant losses will not have to pay corporate income tax on remission gains that exceed their losses, giving them more room to recover financially.

Case study

To illustrate the implications of this proposed change, here is an example of how the proposed scheme works out:

Example: current situation

Suppose X BV owes €6 million to its suppliers. These debt receivables are non-recoverable rights. The suppliers waive these receivables. In the year of renunciation, X BV suffers a loss of €0.5 million and has outstanding losses from previous years worth €4 million.

Under the current rules, the waiver gain is €6 million. The remission profit exemption only applies to the part that exceeds the loss in the year of remission and the losses from previous years that can still be set off.  This means that X BV has a waiver gain exemption of €1.5 million (€6 million - €0.5 million - €4 million). The taxable profit is then €4 million (€6 million - €1.5 million - €0.5 million). Due to the restriction on loss offset, X BV can only offset €2.5 million in losses (€1 million + 50% of €3 million), resulting in a taxable amount of €1.5 million and therefore a tax liability.

Example: proposed measure

Under the proposed measure, for situations with offsetable losses in excess of €1 million, the waiver gain will be fully exempt to the extent that it exceeds the losses in the year of waiver. In this example, this means that X BV has a waiver gain exemption of €5.5 million (€6 million - €0.5 million). The taxable profit and taxable amount are both nil because the non-exempt waiver gain (€0.5 million) cancels out against the loss in the year of remission (€0.5 million). No tax liability arises.

Conclusion

The proposed change to the waiver gain exemption within the 2025 Tax Plan aims to resolve bottlenecks created by the new loss relief rules in force since January 2022. The changes will prevent companies already in financial difficulty from experiencing additional tax burdens due to loss relief restrictions. The changes ensure that companies with significant losses above €1 million will not have to pay corporate income tax on loss relief gains that exceed their losses. This gives companies more room to recover financially without additional tax burden.

In essence, these changes contribute to a fairer and more effective tax system that supports business recovery and growth. It prevents unnecessary bankruptcies and promotes economic stability by giving companies breathing space when they need it most.