NL Tax Alert: 20a does not apply to unrealized losses
Recently, a District Court ruled on the application of art. 20a CIT Act (loss compensation in case of change of ownership) in case of unrealized losses. The taxpayer held a real estate portfolio of which the tax book value exceeded its FMV. The shares in the taxpayer were sold to a third party. Following the ownership change, the taxpayer realized a tax loss on the sale of real estate. The tax inspector wanted to deny the loss on the basis that art. 20a also applies to unrealized losses. However, the Court held that unrealized losses are not caught by these rules.
The decision is relevant for M&A transactions involving a target company with unrealized losses. The court ruling is still subject to the possibility of appeal.