Anticipating, projecting, justifying…, the exemption of the last installment of corporate tax requires careful preparation to reap all the benefits, particularly in terms of cash flow. Here are the key steps to building a strong case to take full advantage of it.
Businesses, stop financing the State with your tax advances! Your company deserves better than to serve as a free banker to the State and return to your company the cash flow that it deserves, legally. Too many companies continue to “waste” their cash flow by paying tax advances to the State.
However, it is legal and recommended to avoid this waste if their tax result allows it! The deadline for submitting your request for exemption from the 4th installment of Corporate Tax (IS), i.e. December 15, has passed by 5 days. A window of opportunity has therefore just closed for eligible companies which have not seized this chance to optimize their cash flow.
However, this annual deadline is of strategic importance that eligible companies should not neglect in the future. In the current economic context, preserving cash flow is indeed a major issue for many companies. Well-managed companies know: optimizing their cash flow is crucial for their sustainability.
The exemption from the 4th installment of corporate tax represents in this regard a major lever that should not be neglected. As one accountant explains, “Good cash flow management is crucial to the financial health of a business. It allows you to meet current expenses, invest and seize new opportunities. The exemption from the 4th IS installment offers an optimization lever by avoiding unnecessary advances when the anticipated tax result is lower than forecast.
Exemption conditions
To benefit from this exemption, two main conditions must be met according to tax regulations. “First, the tax already paid on the first three installments must be greater than or equal to the tax ultimately due. Secondly, the request must be based on a reliable projection of the tax result as of December 31,” specifies a knowledgeable financial manager.
Establishing a reliable projection of the tax result as of December 31 is a crucial step to justify the request for exemption from the 4th IS installment. This projection must reflect as closely as possible the expected reality of the company’s activity over the fiscal year. To achieve this, a rigorous and in-depth analysis of accounting and financial data is essential.
First of all, it is essential to carefully examine the sales trends over the last few months and try to identify a forecast trend until the end of the year. The following elements must be taken into account: the order book, new contracts or markets signed, sectoral outlook, seasonality of the activity, etc. Next, it is appropriate to sift through the operational costs, distinguishing between variable costs and fixed costs. For variable expenses, they must be correlated to sales forecasts.
For fixed costs, foreseeable increases (rent, salaries, energy, etc.) and planned investments must be taken into account. Particular attention must also be paid to expected or probable exceptional expenses, whether restructuring, litigation, asset sales or other non-recurring events impacting the result. Furthermore, the level of allocations to provisions to be constituted (risks, depreciation of assets, etc.) or to be reversed must be estimated precisely.
Finally, specific tax elements such as loss carryforwards, tax credits or extra-accounting reinstatements/deductions must be integrated. Faced with the complexity of the exercise, calling on an experienced accountant allows you to benefit from a knowledgeable and informed perspective. This professional will be able to challenge the projection, make the necessary adjustments and certify that the assumptions made are reliable and prudent. A poorly controlled projection exposes you to legal and financial risks in the event of a tax audit. Well prepared, it will, on the contrary, demonstrate the solidity of demand and optimize cash flow.
Risks of a bad assessment
Underestimating the tax result leads to claiming the exemption wrongly, with a risk of subsequent tax adjustment. Conversely, overestimation deprives the company of an appreciable cash flow gain. A poorly calibrated projection of tax income can be very detrimental for the company, whether in the event of underestimation or overestimation. A poorly calibrated projection can have unfortunate consequences.
In the event of underestimation of the tax result, the company will wrongly claim exemption from the 4th installment. If when submitting the final tax package, the tax due turns out to be greater than the sum of the first three installments paid, the administration will consider that the request for exemption was not justified. A tax adjustment will then be inevitable, with payment of the unduly waived deposit, accompanied by late payment interest and potentially penalties for deliberate failure.
Beyond the financial impact, this recovery exposes the company to being subjected to reinforced tax controls in subsequent years. Conversely, an excessive overestimation of the tax result would deprive the company of a substantial cash flow gain in the event of effective eligibility for the exemption. The company will then have paid an ultimately useless deposit, with cash tied up for several months before obtaining regularization when submitting the tax return.
In the current economic context, preserving cash flow is a major issue for many companies. But whatever the error of assessment, upwards or downwards, the consequences are damaging: penalties, reinforced controls, liquidity tensions… A reliable projection therefore appears essential to calmly benefit from the advantages of the exemption, without risk. be exposed to tax, financial and operational risks.
This is why establishing a rigorous and prudent forecast assessment of taxable income is of crucial importance. Carrying out simulations for different scenarios, comparing these estimates to the wise judgment of competent professionals, are all precautions to take to guarantee a reliable projection serving the best interests of the company.
Prepare your request effectively
Best practices consist of anticipating widely to prepare your file well. “Starting projections early, gathering supporting documents, carrying out the necessary simulations… preparation in advance is the key to meeting deadlines and avoiding errors,” recommends a cash management expert.
The file, which must be submitted electronically (on SIMPL IS), must contain elements demonstrating compliance with the conditions, such as detailed forecast accounts certified by a chartered accountant. In the event of unjustified refusal, appeals can be made, but represent an additional burden to be avoided if possible.
Other optimization levers
Beyond waiving the 4th installment, other avenues allow you to improve your cash flow: reduce customer payment deadlines, renegotiate supplier conditions, review your storage policy, optimize your investment and financing management, etc. “The tax advisor and the accountant are major assets for auditing all these aspects and deploying a complete and lasting optimization strategy,” concludes a financial advisor.
Learn lessons so as not to miss the boat in 2025!
This year and as usual, many companies have certainly missed an opportunity to relieve their cash flow by failing to file a request for exemption from the 4th IS installment, due to lack of sufficient preparation.
However, this experience must serve as a lesson for years to come. There is no doubt that in the future, careful and advance preparation of this file, by surrounding yourself with adequate skills, will make it possible to take full advantage of this tax lever. The upstream involvement of specialist advisors constitutes an investment which will quickly be profitable through the substantial gains generated on available cash. A win-win approach for the company and its consulting partners.
By anticipating this strategic file from the start of the financial year and capitalizing on the appropriate skills, companies will be perfectly equipped to seize the lever of the exemption from the 4th IS installment. Successful optimization of their cash flow which will give them a decisive competitive advantage.
Bilal Cherraji / ECO Inspirations
