Providing you with informed commentary on current developments in the local tax and business arena.
Our monthly analysis and comments on new law and administrative changes assist business executives to identify developments and trends in law and Inland Revenue practice that might impact their business.
With the continued impact of the pandemic on the Namibian economy and businesses, companies are making alternative arrangements to settle debts that are due.
It is important to analyze such arrangements for their potential tax implications.
Assessed Loss reduction
Section 21(1)(a)(ii) of the Income Tax Act, Act 24 of 1981, provides for the reduction of the assessed loss of a person who benefits from a compromise made with or concession granted by their creditors.
The balance of any assessed loss must be reduced by the amount or value of any benefit received by or accruing to them resulting from a concession granted by or compromise made with their creditors (provided such liabilities arose in the ordinary course of trade).
The above mentioned section stipulates that where a taxpayer has assessed losses and where a compromise was made in terms of debt, the loss should decrease with the benefit so received.
It is important to note that in terms of case law applicable in Namibia it was held that a loan capitalisation into share capital of the company qualifies as a compromise with creditors, as the obligation to repay the loan is forfeited. Therefore the conversion of debt into share capital will potentially trigger the proviso of Section 21 and may require the reduction of Assessed Losses in the company.
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