Taxation of companies in economic and financial distress

Book overview

This publication delves into the taxation challenges faced by companies experiencing economic and financial turmoil. A company in economic distress entails no or low profitability and a low going-concern value. A company in financial distress is a viable entity with current, but not necessarily long-term, debt-paying problems. Focusing on European domestic tax systems, this book examines various tax issues during distress, including impairment of loans and other commercial receivables, corporate tax treatment of losses, capital injections, tax deferrals and liability to pay taxes.

Key themes and topics

Over the past decade, the European economy has experienced significant growth and prosperity. However, unforeseen challenges emerged in 2020 with the onset of the COVID-19 pandemic, followed by Russia's invasion of Ukraine in February 2022. Despite efforts to recover, many European nations still grappled with COVID-19 restrictions when faced with inflation, an energy crisis, and soaring fuel prices, impacting their economic stability. It is within this context that the book "Taxation of Companies in Economic and Financial Distress" was conceived.

This in depth study addresses key issues including:

• the impairment of loans and other business receivables,

• the tax implications of corporate losses,

• capital injections,

• tax deferral mechanisms; and

• tax payment obligations.

The analysis is based on the assumption that deviations from standard tax relief for struggling companies require strong justifications, such as adherence to the ability-to-pay principle. However, such principles must be harmonized with the objectives of efficiency and fairness within the tax system.

In light of these challenges, the book explores how current European tax systems navigate the complexities of distressed companies. It is structured into three main sections: (i) the General Report provides a broad overview and reviews the findings of the national reports; (ii) three Topical Reports delve into transfer pricing, VAT, and State aid in relation to the book's theme; (iii) and the national reports from 16 EU Member States and four non-EU Member States (Russia, Serbia, Ukraine, and the United Kingdom) offer invaluable contributions from esteemed European tax experts.