The recovery reserve
March 2022 – The recovery reserve was introduced at the end of 2020 as part of the fight against the consequences of the coronavirus crisis. The legislator's intention is to strengthen the solvency and equity capital of companies affected by the crisis. The law on this recovery reserve was commented on by the tax authorities in mid-January.
Purpose of the recovery reserve
Companies have the possibility, at the end of each taxable period relating to one of the tax years 2022, 2023 or 2024, to build up a recovery reserve which, under certain conditions and within certain limits, is not considered as profit. Companies that, at the closing date of the financial year ending in 2020, have not incurred any operating losses do not have this possibility.
The replenishment reserve is therefore in reality a form of deferral of payment of tax charges relating to profits that may be generated in the future. The replenishment reserve will allow companies that maintain their equity and employment levels to quickly recover the equity they had before the coronavirus crisis.
Limits
The replenishment reserve is limited per taxable period, but also globally for the three taxable years considered.
The replenishment reserve is thus limited to the amount of the taxable reserved profits of the taxable period, before the constitution of this immune reserve.
The maximum amount of the recovery reserve, including amounts already taxed, is :
equal to the amount of the operating losses, determined in accordance with the legislation on accounting and annual accounts, at the closing date of the financial year 2020; and limited to 20 million euros.
Companies that keep their accounts on a non-calendar basis and close their financial year in the first part of 2020 may not yet have been adversely affected by the pandemic and are given the option of choosing the annual accounts closing in 2021 as the reference for determining their operating loss.
Excluded companies
Companies that benefit from a special tax regime, such as investment companies, regulated real estate companies and cooperative joint ventures are excluded.
Also excluded are companies that reduce or distribute equity capital. In concrete terms, this means that the company is excluded if it has carried out one of the following operations
purchase of own shares ;
allocation or distribution of dividends (distribution of ordinary dividends, liquidation bonuses, etc.);
reduction of capital, including the reduction of capital referred to in Article 537 of the CIR 92; and
any other reduction or distribution of equity capital.
The exemption regime does not apply to companies that were already considered as companies in difficulty at the beginning of the Covid-19 crisis, i.e. on 18 March 2020.
Other conditions
The replenishment reserve is exempt only to the extent that it is and remains booked in one or more accounts separate from the liabilities and does not serve as a basis for the calculation of the annual contribution to the legal reserve or for any remuneration or allocation (condition of intangibility).
The company may not (in the period under consideration) hold any direct interest in a company established in a tax haven or have made payments to such companies totalling at least 100 000 euros for the taxable period, unless the company can prove that the transactions are genuine and sincere.
Taxability
Amounts allocated to the replenishment reserve will be treated wholly or partly as profits of the taxable period if, during that taxable period, the company carries out any of the following transactions:
repurchase of own shares ;
allocation or distribution of dividends
reduction or distribution of equity capital;
saving on remuneration : If the "620 Remuneration and direct employee benefits" account shows a balance of less than either 85% of the amount established for the same item for the financial year ending in 2019 if this condition is met for the first time during the taxable period, or the previously lowest threshold if this same condition has already been met during a previous taxable period, the amounts allocated to the replenishment reserve become taxable up to the difference between the 85% threshold, or the amount of the previously lowest threshold, and the amount of the "620 Remuneration and direct employee benefits" account.
