Is it possible to use the losses of previous years to reduce the CFC's adjusted profit?
If, according to the balance sheet, a CFC has uncovered losses of previous years (for the period before January 1, 2022), but for the reporting period the CFC is profitable according to the financial statements, can the losses of previous years be used to reduce the adjusted profit of the CFC?
The first reporting (tax) year for the Report on Controlled Foreign Companies (hereinafter referred to as the Report) is 2022 (if the reporting year does not correspond to a calendar year, the reporting period starting in 2022). The controlling person determines the part of the adjusted profit based on the financial statements in accordance with clause 392.2 of the TCU.
According to sub-clause 392.3.3 of the TCU, the adjusted profit of each CFC is determined separately.
If the adjusted profit of a CFC in the reporting year is negative, such a loss does not reduce the pre-tax profit of other controlled foreign companies in the reporting year, but may be taken into account to reduce the pre-tax profit of the same controlled foreign company in future reporting years.
Therefore, uncovered losses of previous periods (before January 1, 2022) of a CFC do not affect the determination of the CFC's adjusted profit.
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