Carrying forward: no time limit, but a ceiling

Verrerie du Rhône SAS lost 1 800 000 € in year N. The following year it makes 1 200 000 € of profit and its director expects no tax at all: the loss more than covers the profit. He will nonetheless pay tax on 100 000 €. Before you read: why does the loss not offset in full?

An expense of the following year

Article 209 of the general tax code sets the mechanism. Subject to the election provided for in article 220 quinquies, where a loss is sustained in a financial year, that loss is treated as an expense of the following year.

The construction is worth pausing on. The loss is neither a tax credit nor a receivable: the text treats it as an expense, that is, as something reducing taxable profit, not the tax itself.

The consequence is direct. A loss of 1 800 000 € is not worth 1 800 000 € of tax saved: it is worth, at best, the tax that a profit of that size would have borne. Conflating the two distorts every cash forecast.

The duration, for its part, is not bounded. The public service page puts it without qualification: a loss sustained in a financial year is deductible from the profits of following years, with no limit in time.

One million, then half of the rest

The same paragraph sets the ceiling, and its formula is the one to be able to apply: the loss is deducted from the profit of the following year within a limit of 1 000 000 € increased by 50 % of the amount of that year's taxable profit exceeding that first figure.

The ceiling is therefore built in two steps. A fixed first band of one million euros is offset unconditionally; above it, only half the excess profit can absorb losses.

A profit below one million euros is never touched by the second part of the formula: the carried loss offsets in full there, up to the profit itself. The ceiling bites only above that level.

The intended effect is legible. A durably profitable company cannot neutralise its tax entirely with a stock of old losses: a fraction of profit stays taxable each year, for as long as the stock lasts.

The remainder is not lost

The paragraph goes on and closes the mechanism: if the profit is not sufficient for the deduction to be made in full, the excess loss is carried on the same terms to the following years.

The last sentence expressly covers the fraction blocked by the ceiling: the same applies to the part of the loss not allowed as a deduction under the first sentence. The ceiling defers the offset, it does not cancel it.

That is the nuance the director in the example misses. He loses nothing: he pays earlier than he hoped. His stock of losses stays available, reduced by the amount actually offset, and will offset on the same terms in later years.

The text finally raises the ceiling for companies in difficulty: for those granted debt waivers under an agreement recorded or approved by the court, or during insolvency proceedings, the one-million-euro limit is increased by the amount of those waivers.