Taxation of Companies in Economic and Financial Distress

This book investigates the taxation of companies under economic and financial distress. A company in economic distress has no or low profitability and a low going-concern value. On the other hand, a company in financial distress is a viable entity with current, but not necessarily long-term, debt-paying problems. This book provides an overview of how European domestic tax systems deal with tax issues in distress, focusing on the impairment of loans and other commercial receivables, corporate tax treatment of losses, capital injections, tax deferrals and liability to pay taxes.

Why this book?

The European economy has flourished over the last decade. However, in 2020, the COVID-19 pandemic hit the world, forcing many societies to enter a total lockdown. In February 2022, Russia invaded Ukraine. Many European countries still had COVID-19 restrictions in place when their economies were struck by inflation, an energy crisis and high fuel prices. This is the context in which Taxation of Companies in Economic and Financial Distress was written.

This book focuses on the impairment of loans and other commercial receivables, the corporate tax treatment of losses, capital injections, tax deferrals and the liability to pay taxes. The analysis is based on the assumption that changes to what normally applies in the tax system to support companies in distress must be justified with good reasons in order to be legitimate. An example is the ability-to-pay principle. However, the ability-to-pay principle must be balanced with the goal of an efficient and fair tax system.

Against this background, this book examines how current European tax systems deal with companies in distress. It is divided into the following three parts. Part 1 is the General Report, which provides a broad overview and reviews the findings of the national reports. Part 2 contains three Topical Reports, which relate the overarching theme of the book to transfer pricing, VAT and State aid. Part 3 contains the national reports of 16 EU Member States and four non-EU Member States (Russia, Serbia, Ukraine and the United Kingdom). These contributions were written by distinguished European tax experts.