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Belgium: Tax measures

Alessandro Pasut

The federal government agreed on several tax measures it is now turning into draft legislation, among others regarding withholding tax. A reduced withholding tax will be introduced on dividends on new nominative shares in SME’s representing contributions in cash. Only dividends on new shares in SME’s can benefit. The distributing company must only be an SME at the time of the contribution of cash. Companies with no minimum capital may not benefit from the measure unless the capital after the contribution is at least equal to the minimum capital of a limited liability company. The withholding tax rate is 25% on dividends distributed out of profits realized in the first accounting year following the contribution; 20% on dividends distributed out of profits realized in the second accounting year following the contribution; 15% on dividends distributed out of profits realized in the third and any subsequent accounting year following the contribution. The shares must be held uninterruptedly in full ownership since their creation until the distribution of the dividend in order to benefit from the reduced withholding tax. In the framework of these measures several other anti-abuse measures will also be introduced such as: capital increases following capital decreases do not benefit from the reduced withholding tax rate except in case and to the extent the capital increase exceeds the capital decrease. Sums resulting from a capital decrease made by a company which is affiliated or associated with persons (including spouses, parents and dependent children) reinvesting those sums into the capital of another company cannot benefit from the reduced withholding tax rate either; the capital increase must be fully paid-up; no preference shares can be created.

 

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Belgium: Fairness tax

Alessandro PasutThe excess determined by the last tax measures is reduced by the amount of any dividends that resulted from previously taxed reserves built up during tax year (at the latest) or prior periods. The result achieved after the first and second step of the tax measures will be multiplied with a percentage reflecting the proportion between on the one hand certain tax attributes (i.e. previous tax losses and notional interest deduction) and on the other hand, the taxable result of the taxable period. While the fairness tax does not apply to small and medium sized companies, non-resident companies, i.e. companies with a Belgian permanent establishment, are liable to pay the tax. Distributed dividends are defined for the purpose of the fairness tax as the part of the dividends distributed by the company in proportion to the positive share of the accounting result of the Belgian establishment in the global accounting result of the company.

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Belgium: new circular fiscal letter

Alessandro PasutFollowing two rulings issued by the Court of Justice of the European Union, the Belgian tax authorities published a circular letter dealing with refunds of withholding tax on Belgian source dividends to non-resident entities subject to a foreign corporate income tax regime. The circular outlines the conditions under which a foreign company can reclaim a refund of withholding tax in relation to Belgian source dividends which did not qualify for withholding tax exemption under the extended Belgian implementation of the EU Parent-Subsidiary Directive. It also provides for some additional clarification in relation to the previously issued circular regarding withholding tax refund claims on behalf of regulated investment companies Apart from what applies to regulated investment companies the main general conditions for foreign companies to file Belgian dividend withholding tax refund claims can be summarised as follows:

- Qualifying beneficiaries: any foreign company which does not have a Belgian permanent establishment to which the qualifying shareholding is attributable. This includes non-EEA resident companies, provided the double tax treaty with the relevant country contains an ‘exchange of information’ clause;

- Qualifying dividend: Belgian-source dividend that would have qualified for the Belgian participation exemption if the foreign company had been taxable in Belgium on such a dividend. Thus the foreign company must have held, for an uninterrupted 1-year period and in full ownership, Belgian shares representing less than 10% of the Belgian company’s issued capital but having an acquisition value of at least 2.5 million euro. The circular limits refund claims to foreign companies resident in either in the E.E.A. or in ‘Third Countries’ with whom Belgium has concluded a Double Tax Treaty containing an exchange of information clause. The same limitation now also applies to regulated investment companies.

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Belgium: New fiscal measures

Alessandro PasutThe Belgian Parliament has approved the law containing various tax measures decided in the framework of the budget.
Large companies will be subject to a fairness tax on their distributed dividends.
The fairness tax is a separate tax of 5.15% to be paid by the company distributing the dividends. Increases will be applied if the taxpayer fails to make advance tax payments. The tax only applies if during the taxable period the company has distributed dividends and part or all of the taxable profit has been offset by either current year notional interest deductions or tax loss carry-forwards. The taxable base of the fairness tax is calculated in three steps: firstly, the positive difference is determined between the gross amount of distributed dividends and the final taxable result which is subject to the corporate income tax rate of 33,99%.
The fairness tax will only be due if the amount of distributed dividends is higher than the final taxable result.

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Belgium: New tax measures

 

Alessandro PasutVAT. Certain types of intra-Community acquisition of goods are currently treated as exempt transactions, so that they must be reported in the VAT return. In order to reduce the administrative burden, they will be treated as transactions that are not subject to VAT as from 1 January 2014, as a result of which the transactions must no longer be included in the VAT return.

As from 1 January 2014, lawyers’ fees have become subject to 21% VAT while previously they were VAT exempt.

Fairness Tax. As from tax year 2014, large companies are subject to a fairness tax on their distributed dividends. While the fairness tax itself is not tax deductible, it can be offset against the prepayments made and the withholding tax paid.

Tax procedure. Adjustments to the income tax code have been made to amend certain aspects of the rules governing tax procedure, such as an enlargement of the powers and authority of tax inspectors in case of tax audits, the scope of the use of information received from the tax payers, notification requirements in case of information received from foreign tax authorities, etc.

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Belgium: investment deduction

Alessandro PasutInvestment deduction: under certain conditions, the legislator reintroduces the one-time investment deduction for 2014 and 2015 for small companies, as defined by the Belgian Company Code, setting the rate at 4%. The application may be extended for later years by Royal Decree. The measure only applies to ordinary investments while investments for which one can already benefit from a special investment deduction regime are not eligible for the measure.

Only newly acquired or newly generated fixed assets qualify for the investment deduction. These assets must relate directly to the existing or planned economic activity of the company and not merely to the statutory corporate objectives. Items that would have to be excluded from the calculation basis of the notional interest deduction are also excluded from the application of this one-time investment deduction.

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Belgium: the Vat authorities

The Belgian VAT authorities have published a new circular letter on e-invoicing outlining the basic conditions applying to it. The first prerequisite is that this form of invoicing must be accepted by the recipient of the invoice. Secondly the authenticity of origin, the integrity of content and the readability of the invoice should be guaranteed from the issuance of the invoice throughout the complete legal archiving period of 7 years (15 years when related to immovable property).

In particular with regard to the first condition, the authorities emphasize that the right to deduct input VAT could be jeopardized if acceptance of e-invoicing cannot be proven. The authorities therefore recommend drafting a specific agreement on e-invoicing or integrating a provision on e-invoicing into a written agreement.

Whereas in the past, the requirements of authenticity and integrity could only be met through the technology of an electronic signature or EDI (electronic data interchange), the Belgian legislation and administrative practice gradually left the choice of how to cope with these requirements to the business.

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Belgium: NID (Notional Interest Deduction)

Permanent establishments or real estate situated in a member state of the European Economic Area of which the income is exempted in Belgium based on a double tax treaty: the NID to be deducted in Belgium will be reduced with the NID portion relating to the net assets attributed to the permanent establishment or real estate to the extent that it is lower or equal to the positive result derived from these assets.

In case the NID portion related to these assets exceeds the result derived from them, the excess can be deducted from the result in Belgium.

Permanent establishments or real estate situated in a state outside the European Economic Area of which the income is exempted based on a double tax treaty: the calculated NID to be deducted in Belgium will be reduced with the NID portion relating to the net assets attributed to the permanent establishment or real estate. This applies as from tax year 2014.

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Belgium: several indicators of a tax fraud

Alessandro PasutBELGIUM

The several indicators

There are several indicators showing the “serious” character of a tax fraud: the used of forged documents; the abnormal character of the amount compared to the activities or the equity of the taxpayer; the use of a shell company located in a tax haven, in an off-shore location or at the premises of a front man; the use of a company of which the statutory objective has been changed shortly prior to the suspicious financial transactions; the use of an intermediary party for a financial transaction, acting for the account of the tax payer; performing financial transactions that are atypical or suspicious (in the light of the normal activities of the company); the considerable increase of the turnover on a recently opened bank account that has not been used or has not been used much before.

Other indicators are irregularities in invoices relating to financial transactions; channeling payments through accounts and the existence of successive transactions through those accounts, which only have a minimal positive balance; channeling payments through accounts of other people than financial professionals; the international dimension of the financial transactions; the refusal or inability to produce proof of the reason for the payments or their origin; organizing the insolvency of a company through the sale of its assets to affiliated persons or at non-arm’s length conditions; payments of fees to foreign companies without commercial activities and payments in the opposite direction.

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Belgium: Notional Interest Deduction

Alessandro PasutBelgium: Notional interest deduction

Belgium aligns the rules relating to the notional interest deduction (NID) with the judgment of the Court of Justice of the European Union issued in July 2013.

The NID is a tax deduction for corporate taxpayers based on their adjusted net equity. Typical adjustments were, among others, the net assets used by a foreign permanent establishment and the net assets invested in real estate located in countries with which Belgium has concluded a double tax treaty.

According to the Court of Justice of the European Union, the exclusion from the NID base of the net assets of the permanent establishment located in another member state of the European Union constitutes a restriction of the freedom of establishment as Belgian companies are dissuaded from establishing branches in other member states.

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