Debt waivers in the context of reorganisations: The end of the tax asymmetry!

By the law of 28 December 2023 (the "Law"), the legislature amended the corporate income tax treatment of debt waivers in the context of reorganisations. 

These changes follow the implementation of EU Directive 2019/1023 into Belgian law (Restructuring Law of 7 June 2023 – the "Restructuring Law"; effective since 1 September 2023) and are summarized below.

Former regime

The tax treatment of debt waivers depended on the type of reorganisation.

In short, if the debt waiver resulted from a judicial reorganisation or a Court-homologated or recognised judicial amicable settlement, both the creditor and the debtor could benefit from a tax exemption:

• Creditor: on impairments/provisions recorded for doubtful receivables; and
• Debtor: on extraordinary profits resulting from debt waivers.

However, if the reorganisation was non-judicial (i.e. amicable settlement), only the creditor could benefit from the tax exemption. Hence, from a tax perspective, non-judicial reorganisations were treated less favorably than judicial reorganisations.

New regime

The Law brought the following changes:

• Debtors and creditors: the tax exemption (both for the creditor and the debtor) now covers new reorganisations introduced by the Restructuring Law, including non-judicial amicable settlements; and
• Debtors: for judicial reorganisations and non-judicial amicable settlements, the debtor's tax exemption becomes temporary and entails a deferred taxation: 25% of the initially exempt amount is taxed on a yearly basis during four taxable periods as from the third taxable period following that in which the reorganisation plan or amicable settlement is fully implemented.

These changes aim to address the previous asymmetrical situation whereby the waived amount could both be deducted by the creditor and exempted for the debtor (e.g. in case of judicial reorganisation), while still spreading the debtor's taxation over several years to facilitate his return to financial equilibrium. 

Entry into force

The above changes introduced by the Law have gradually come into force between 1 September 2023 and 8 January 2024.

In case of questions, please do not hesitate to reach out to your regular contact within the Fieldfisher Belgium tax team.