Carry-forward of tax losses (France)

The carry-forward of tax losses allows a company subject to corporate income tax to offset a tax loss recorded in one year against the profits of later years, reducing future tax accordingly. In France, this carry-forward is in principle unlimited in time, but its annual use is capped: the loss carried forward can only wipe out one million euros of profit, increased by half of the fraction of profit above that threshold.

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This stock of losses is a genuine tax asset, which can represent significant value for a company that has returned to profitability. Its preservation is nonetheless subject to strict conditions: a change in actual activity or certain restructuring transactions can entail the loss of the carry-forward right, which makes it a point of attention in financial due diligence.

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Take a company with 3 M€ of carried-forward losses that returns to 1.4 M€ of profit. The offset is capped at 1 M€ increased by 50% of the excess fraction, that is 1 plus 0.2, equal to 1.2 M€ here: it wipes out only 1.2 M€ of profit, the remaining loss staying available for future years.

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On an acquisition, the existence and security of these losses affect the value and structuring of the deal. Their transfer in a Merger requires an approval or compliance with legal conditions, and their fate within a Tax consolidation follows specific rules, to be analysed before ascribing value to them in the negotiation.