New discipline of carrying over business losses

With the 2019 budget law, in order to eliminate the unequal treatment of business losses based on the subjective profile, the legislator intervened by modifying Article 8, paragraph 3 of the Tuir.

The new article states that “the losses deriving from the business operation, in an individual or associated way, with a simplified and ordinary accounting method, are deducted from the business income and, for the excess, from the business income of the following periods, within the limit of 80% of the latter, without time restrictions”.

This change involves:

• the possibility to compensate fully the losses with any other business income earned in the same period by the IRPEF subject, without taking into account the 80% limit.

In this case, the companies with an ordinary account method, can offset the operating losses that emerge from line RG25, with any income deriving from participation in other partnerships, which will be indicated respectively on line RF58 for companies in ordinary accounting method. RG26 for companies in simplified accounting method.

If there are any excess of loss, it should be stated in the RN section of the Partnership Tax Return and distributed among the shareholders who will in turn consider it a reduction in the income earned by the company.

• in the event of the inability or absence of additional income of the enterprise during the tax period in which they were produced, the possibility of carrying it forward in the following periods of tax by deduction within the limit of 80% of taxable income, taking into account the full amount of capacity and subject to indication in line RS12, column 3 of the Tax Return.

In framework “RS” past losses arising from the ordinary accounting method must be carried forward cumulatively, since they can be offset in subsequent periods without any time limit.

The general rule that excess losses may be used in subsequent tax periods within the limit of 80% is an exception to the transitional arrangements for annual losses from 2017 to 2019 for companies in simplified accounting method, and as the carryover takes place for income percentages below 80%.

The amendments in question shall apply from the tax period following 31 December 2017, by way of derogation from the Statute of the Taxpayer’s Rights with regard to non-retroactivity of tax provisions (Article 3, paragraph 1, Law 212/2000).

The discipline of the losses incurred during the first three tax years relating to new production activities in accordance with Article 84, paragraph 2 of the tuir, which provides for a full carry-over, remain unchanged.