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Since 2007, article 147 of the Tax Code established the possibility to carry forward net ordinary losses (hereafter "NOL") indefinitely. As a result, companies are able to compensate NOL with the net income of the following years. This is applicable notwithstanding the presumptive income.

The resulting company of a merger or spin off process can compensate the NOL accrued by the merged or spun off companies with its net income. This compensation of NOL is limited to the participation in the net equity of the absorbed or spun off companies.

The following rules have to be followed in order to be able to benefit from the compensation of NOL:

  • In order to carry forward the NOL from the spun off or merged companies, the economic or income-generating activity of all the participating companies must be the same and must be maintained after the reorganization process.
  • If the applicable regulations of the tax periods in which the NOL were accrued establish certain limitations, this must be taken into consideration by the taxpayer.
  • Before 2007, there were two different regimens that applied for NOL, as follows:
  • NOL accrued before 2003 could only be carried forward for a period of 5 years.
  • NOL accrued between 2003 and 2007 can be carried forward for a period of 8 years. Additionally, the set off is limited to 25% of the NOL per year.

For CREE tax purposes, since the tax was introduced (Law 1607, 2012) it was discussed whether it was possible to carry forward NOL. The Tax Authorities considered it was not possible. However, Law 1739, 2014 made it clear it was possible for NOL accrued in fiscal years 2015 and following. Nonetheless, the Constitutional Court issued Court decision C-291/15 in which declared that Law 1607, 2012 was constitutional as long as it was understood that NOL could be compensated also in years 2013 and following.