This country-specific Q&A provides an overview to tax laws and regulations that may occur in Belgium.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax
How often is tax law amended and what are the processes for such amendments?
Belgian tax law is subject to amendments throughout the year. However, it is common to have one or various so-called ‘Program Acts’ enacted at the end of the tax year (i.e. in December) that often include substantial amendments related to tax matters.
As Belgium is a federal state, both the Federal state and the Regions may enact legislative instruments related to tax. Provinces and municipalities may also levy some taxes, but their competences are limited by legislative instruments.
Parliamentary legislative works are available on the internet. The consultation process in connection with the implementation of new tax laws is generally public. Several institutions and interest groups usually have the opportunity to comment on any draft bill and to propose changes. Furthermore, if the law is substantially modified, then there are hearings or consultations during the legislative process, which give legal scholars, industry, and other stakeholders the opportunity to raise any concerns.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
A Belgian taxpayer’s principal procedural obligation is to file a tax return.
Corporate income tax returns must be filed electronically. The period for filing may not be less than 1 month after the date of approval of the company’s accounts by its shareholders’ general meeting and must not be longer than 6 months after the end of the company’s accounting year.
The company’s financial statements, including its balance sheet, profit and loss account and explanatory note must be included with its tax return.
Financial statements and other records that are related to a particular year of income for which the company’s taxable income may be determined must be kept in any company place of business in Belgium for the following seven years.
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
The highest authority dealing with tax matters in Belgium is the Federal Ministry of Finance. The Central tax administration and all other tax authorities at the federal level are placed under Federal Ministry of Finance’s hierarchical authority. A similar structure is found in each Region, where the relevant Ministry of Finance has authority over the regional tax administration.
At the local level, tax offices deal with taxpayers’ day-to-day tax matters, in particular: processing and reviewing tax returns, issuing tax assessment notices, collecting taxes, and handling taxpayers’ claims (over tax disputes, see infra). The local tax office officials are usually available during office hours and are often open to resolving issues in a rather informal and cooperative way. If a tax matter is more complex, or particularly important due to the amounts involved, or affects a number of taxpayers, then it may be passed up to a higher authority such as the Central tax administration.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
If a taxpayer disagrees with his/her tax assessment, then he or she may file a written notice of objection within 6 months from the third working day following the date on which the assessment was sent. The tax authorities will review the case, and ask for all the information that they deem useful, including information from third parties, such as banks and similar institutions. After having reviewed the case, an adviser-general will make a reasoned decision.
If the taxpayer disagrees with the adviser-general’s reasoned decision, then he or she may file a claim against that decision with the local court of first instance, within 3 months after the decision’s notification. If the adviser-general does not make a decision within 6 months from the taxpayer filing his/her notice of objection, then the taxpayer is no longer obliged to wait for the adviser-general’s decision and can directly file a claim against the tax assessment with the local court of first instance.
Following the court of first instance’s judgment, an appeal may be filed with the Court of Appeal within one month. A review of the Court of Appeal’s ruling by the Supreme Court may be requested to the extent that a question of law arises in the matter. The Constitutional Court may be asked to rule on whether a tax law provision is compatible with the Belgian constitution.
The duration of judicial proceedings very often depends on the courts’ workload and may vary from two to three years for the tribunal of first instance and up to five years for of the Court of appeal.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
Corporate taxpayers must make prepayments during the year corresponding to their estimated tax liability for that year. For corporations with an accounting year similar to the calendar year, prepayments must be made on or before April 10th, July 10th; October 10th and December 20th.
Failure to make prepayments subjects the taxpayer to a non-deductible surcharge. The surcharge is calculated on the basis of the total corporate income tax less the withholding taxes that can be credited against the corporate income tax. For accounting year 2016, the surcharge rate applicable on the underlying tax due is equal to 1.125%. The surcharge for insufficient prepayments does not apply in the case of small and medium-sized companies (‘SMEs’, see point 15 below for a definition) for the first 3 years after the company’s establishment.
The tax is assessed based on the tax return filed by the taxpayer. As a general rule, the assessment must be sent to the taxpayer no later than June 30th of the year following the assessment year. The assessment year corresponds to either the year following the accounting year if the accounting year coincides with the calendar year, or the calendar year if the accounting year does not coincide with the calendar year. On the basis of the data included in the annual corporate income tax return, the tax inspector verifies whether the prepayments of corporate income tax were sufficient. In the case of failure by the taxpayer to file a formally valid, accurate and timely return, the statute of limitation provides for a 3-year term, starting on the first day of the assessment year, for the tax authorities to make an assessment. The term of 3 years is extended to 7 years in the case of fraud.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
Yes. Under the Income Tax Code (‘ITC’), the Belgian tax authorities must observe the ‘tax secrecy’ principle. Civil servants are not allowed to disclose to anyone else the facts or circumstances that have become available to them in the exercise of their work activities. Violation of this ‘tax secrecy’ principle is a criminal offence. However, there are certain exceptions to this principle, for example if disclosing facts and circumstances assists in the pursuit of criminal proceedings unrelated to tax matters.
Belgium has concluded a multitude of bilateral double tax treaties and agreements on the exchange of information with other countries under which the authorities of various jurisdictions assist each other through the exchange of information that is relevant to the administration and the enforcement of the respective tax laws. The information that can be exchanged under such treaties and agreements includes information that is relevant to the determination, assessment and collection of taxes, the recovery and enforcement of tax claims, or the investigation or prosecution of tax matters.
Following OECD anti-Base Erosion and Profit Shifting (‘BEPS’) recommendations, the rights of the authorities to exchange taxpayer data will be further broadened, e.g. the exchange of tax rulings or country-by-country reporting.
Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?
Yes, Belgium is a signatory of the Common Reporting Standard and has implemented it into national law (Law of December 16th, 2015). The same law implements the obligation deriving from the US Foreign Account Tax Compliant Act (‘FATCA’).
A public register of beneficial ownership is not part of the implementation.
Are there any plans for the implementation of the OECD BEPs recommendations and if so, which ones?
As an EU member state, Belgium must transpose Directive 2016/1164 of July 12th, 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market (also known as the anti-tax avoidance directive or ‘ATAD’). ATAD must be transposed into Belgian law with effect from January 1st, 2019.
ATAD includes 5 important measures against tax avoidance that are largely inspired by the OECD BEPS recommendations: an interest limitation rule, exit taxation, a general anti-abuse rule, a CFC rule, and the prevention of hybrid mismatches.
Some of these rules already exist in Belgian tax law, such as the exit taxation and the general anti-abuse rule (see infra).
In addition, it is expected that Belgium will sign and ratify the Multilateral Convention implementing tax treaty-related measures to prevent BEPS (also known as the Multilateral Instrument or ‘MLI’) and to make this convention effective to the widest possible extent.
Is there a GAAR and, if so, how is it applied?
As a founding principle of Belgian tax law, taxpayers have the right to organise their affairs in the most tax-efficient way. There is no ‘sham’ and hence no fraud when a taxpayer enters into a transaction, even if the transaction is carried out in a rather unusual way, provided the taxpayer accepts all the legal consequences of his/her actions (Cass. June 6th, 1961, Brepols) and this view is irrespective of the fact that the taxpayer’s action has been performed with the sole aim of reducing tax (Cass. March 22nd, 1990, Au Vieux Saint Martin).
If the taxpayer does not accept all the legal consequences of his/her actions, then the taxpayer is engaging in a ‘sham’ transaction. In such case he or she is considered to be illegally-evading tax and committing fraud, which is subject to criminal prosecution.
To tackle tax avoidance, as opposed to tax evasion, Belgium introduced a GAAR in 1993. After years of legal uncertainty on the exact scope of its application, the GAAR was rewritten in 2012.
Under the Belgian GAAR, a transaction or series of transactions may not be opposed against the Belgian tax authorities if they prove an ‘abuse of law’. Such an ‘abuse of law’ is deemed to occur when the taxpayer carries out a transaction in which the taxpayer either avoids the application of tax provisions in a manner that is not compatible with those provisions’ objectives or claims a tax benefit that is contrary to the legislative intent of a respective tax provision.
If the tax authorities supply evidence of an abuse of law, then the taxpayer can prevent the application of the GAAR by proving that the underlying transaction has additional relevant objectives other than tax avoidance.
In practice, the GAAR targets three kinds of situation: (i) where the only objective of a transaction is to obtain a tax advantage; (ii) where the non-tax objectives are general and not specifically connected with the underlying transaction; or (iii) where the non-tax objectives, although connected with the underlying transaction, are immaterial.
Belgian tax law also provides various specific anti-avoidance provisions, such as: the provisions relating to the granting of abnormal or gratuitous advantages between businesses; the non-deductibility of payments to certain non-residents; the non-opposability of the transfer of certain assets to tax havens; the refusal of ‘tax neutrality’ for mergers/demergers when their principal objective (or one of their principal objectives) is tax evasion or tax avoidance; and the refusal of the participation exemption of an arrangement or a series of arrangements that, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the Parent-Subsidiary Directive, are artificial with regard to all relevant facts and circumstances.
Does the tax system broadly follow the recognised OECD Model?
Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties.
If so, what are the current rates and are they flat or graduated?
Belgium broadly follows the recognised OECD Model.
Income derived by a corporation is taxable as business income for the whole (see infra). Consequently, the following distinction made between different categories of income is irrelevant for corporate taxpayers.
On the contrary, personal income tax (hereafter ‘PIT’) is levied on four different income categories: (i) income from real estate; (ii) income from movable property (including dividends, interest and royalties); (iii) income from professional activities (including business profits, proceeds from a liberal profession, employment income and pension income); and (iv) miscellaneous income. The total taxable income equals the total income from all four categories. Yet, particular rules apply to each category and its components both for the computation of taxable income and for the calculation of the tax itself.
a. Taxation of business profits
Business profits derived by a corporation are subject to corporate income tax at a flat rate of 33.99% (i.e. 33% with an additional ‘crisis’ surcharge of 3%). Progressive rates can be applied when the taxable profit does not exceed 322,500.00 EUR and provided some conditions are met.
Business profits and proceeds from a liberal profession derived by individuals are subject to PIT at progressive rates. The top marginal rate of 50% starts at 38.080,00 EUR (assessment year 2017). In such a case, the PIT is also subject to advance payments.
b. Taxation of employment income and pensions
Employment income is taxed at the ordinary progressive rates. Income from employment is broadly defined as “all remuneration resulting from the employee’s activities in the service of the employer”. Therefore, it includes the total amount of the employee’s remuneration earned “by reason or at the occasion of” his or her employment, regardless of the debtor, the nature of the remuneration or the way in which this remuneration is determined and paid. Consequently, salary payments as well as benefits-in-kind, tips, termination payments, etc. are, in principle, subject to the same taxation regime. As a general rule, PIT on employment income is levied through employer wage tax withholding.
In principle, pension income, annuities and other related income are also taxable as (deferred) employment income and are therefore subject to the same rates. However, pension income may be taxed at a favourable tax rate provided some conditions are met. In general, either the employer is granted a tax benefit relating to the contributions, either the payment at the end of the contract is tax free or taxed at a favourable tax rate in the hands of the beneficiary.
Any income derived from immovable or movable property that is used for the professional activity of the beneficiary of the income qualifies as professional income (and no longer as income from movable or immovable property).
c. VAT (or other indirect tax)
Supply of goods and services are generally subject to VAT. The standard Belgian VAT rate is 21%. For some goods and services, reduced rates of 12%, 6% or exemptions may apply.
d. Taxation of savings income and royalties
Savings income and royalties from assets not used by the taxpayer for the exercise of his or her professional activity usually falls within the category of income from movable property.
As a general rule, income from movable property is subject to withholding tax if sourced in Belgium. The withholding tax is final for private individuals, meaning that the income is no longer to be declared by the taxpayer in his/her tax return. If no withholding tax is levied, then a tax equal to the withholding tax will be levied following the assessment. Expenses related to such income and financing costs are normally not deductible. Income from movable property is subject to a 30% flat tax rate from January 1st, 2017.
Although there is no specific regime for royalties (contrary to the patent box available for the corporate income tax or ‘CIT’, see infra), a favourable regime applies to copyright. Copyright payments, whether or not from a professional activity, are subject to the withholding tax on movable property. However, copyright from a professional activity is taxed as income from movable property at the rate of 30% for the first 57,270.00 EUR group. The part of gross copyright exceeding 57,270 EUR is taxable as professional income at the ordinary progressive rates. A special lump-sum cost deduction applies to copyright that is fairly favourable. All income from copyright must be declared in the personal income tax return, even when withholding tax has been levied.
e. Taxation of income from land
The tax regime of income derived by a private person from immovable property that is not used for the purpose of his/her professional activity mainly depends on the use that is made from the immovable property.
In the case where the property is not rented out (even when the property does not produce any income at all), or in case the property is rented out to an individual not using it for his or her business (i.e. the rent is not deducted as a business expense), the taxable net income is based on a notional income, called the “cadastral income”. The cadastral income is the deemed ‘normal’ annual net income valued in accordance with the rental value at January 1st, 1975, of a property (and its immovable equipment). The cadastral income is determined in the first instance by the Land Registry Department and is indexed annually. It is not uncommon that the cadastral income is lower than the actual rental income resulting in a favourable treatment of income from immovable property.
On the opposite side, immovable property rented out to a party using it for business purposes is normally taxable on the actual rental income (subject to adjustment).
Sums received for the granting or assignment of long leases or a right to build are also treated as income from immovable property. If payments relate to a lease contract and the property will pass at the end of the contract, then capital repayments are tax-exempt.
The expenses relating to immovable property are computed on a flat basis depending on whether the property is built upon or not (i.e. a deduction of 40% or 10%, respectively). From this adjusted gross income, interest on loans specifically contracted for acquiring or maintaining the immovable property, may be deducted. A loss resulting from this deduction may not be set off against other income and may not be ‘carried forward’ or ‘back’.
Income from immovable property located abroad is normally determined according to similar rules. Such income will likely be exempted in the event of an applicable Tax treaty but will have to be declared in Belgium to determine the progressive rate applying to the income taxable in Belgium.
Capital gains from built real property and from land may be taxed as miscellaneous income provided certain conditions are met (Art. 90(1)8° and 10° of the ITC and see infra, capital gains).
f. Taxation of capital gains
The taxation of capital gains may be broadly addressed depending on two factors: who realised the capital gain and on which asset is the capital gain realised?
A. Private persons
Capital gains realised by a private person outside the scope of his/her professional activity qualify as miscellaneous income and are taxed at a flat rate of 33%. However, gains resulting from the normal management of one’s private estate consisting of real estate, a portfolio, shares, or movable property are not taxable. Advanced rulings may be sought to obtain confirmation whether a transaction qualifies as “normal management of one’s private estate”. Regarding real estate, capital gains derived by private individuals from the disposal of immovable property (except their own private dwelling) are generally only taxable if the time period between the acquisition of the property and its disposal is no longer than 8 years for the disposal of land and 5 years for buildings. If taxable, then such gains are normally subject to a flat rate of 16.5%.
Capital gains are regarded as ordinary business income and taxed accordingly; capital losses may be set-off against ordinary business income. In principle, tax is only levied on realised capital gains but may, in certain situations, also be levied on unrealised gains.
Taxable gains and losses are computed as the sales price of the asset less the acquisition or manufacturing cost, which may be reduced by earlier underlying capital losses and depreciation(s). The tax treatment is in line with the general accounting principles.
However significant exceptions exist, two of them are discussed below: the deferral payment on capital gains realised on fixed assets and capital gains on shares.
1) Tax deferral for capital gains on fixed assets
Under certain conditions, deferred taxation (‘roll-over relief’) is available for: involuntarily realised capital gains from damages, expropriation or similar events relating to tangible or intangible fixed assets; and non-exempt capital gains realised on the transfer of tangible or intangible fixed assets that are held within a company for more than 5 years prior to the transfer if the proceeds of the realisation are invested in depreciable assets.
The reinvestment must: (i) take place within 3 years of the realisation of the capital gains, and (ii) be made for depreciable, tangible or intangible, fixed assets (iii) that are located in EEA countries.
After reinvestment, deferred capital gains are taxed in proportion to the depreciation costs incurred on the reinvested assets.
This deferred taxation applies only to the extent that the gains are (and remain) included in one or more separate accounts on the liabilities’ side of the balance sheet, and that they are not used for the calculation of the annual contribution to the legal reserve, nor for any kind of reward or bonus. If those conditions are no longer fulfilled during a taxable period, then the capital gains are considered as profits in that taxable period.
2) Capital gains on shares
Capital gains on shares and participations are exempt from corporate income tax (i) if the company, whose shares on which the capital gains are realised, complies with the taxation requirement applying to the participation exemption (i.e. that the underlying company is subject to corporate tax or a similar tax abroad, see infra) and (ii) if the shares and participations have been held in full ownership for an uninterrupted period of at least 12 months. There is no participation threshold to be fulfilled.
Capital gains on shares fulfilling the taxation requirement but not the minimum holding requirement are taxable at 25.75%. The normal rate (33.99%) continues to apply for the taxation of capital gains on shares that are already taxable to the extent that their income does not allow a deduction for participation exemption.
A separate tax of 0.412% has been introduced on capital gains on shares held for longer than one year and realised by companies that do not qualify as an SME (see infra, point 15). This non-deductible separate tax cannot be set-off by tax deductions or losses.
g. Stamp and/or Capital duties
There is no capital duty or similar duty on the formation and expansion of capital of companies.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
Taxable income is all worldwide income, less allowable deductions. It is, in the first instance, determined on the basis of the profit shown in the company’s financial statements drafted by its Board and approved by its shareholders’ general meeting. The accounting profit is adjusted to comply with specific tax rules deviating from the accounting standards.
Technically, the taxable basis of a corporation is defined as the sum of the net increase in the company’s taxable reserves, the distributed profits and the disallowed expenses. This taxable basis is then adjusted to take specific tax exemptions and allowances to determine the final taxable profits.
Practically-speaking, there are no distinct financial statements for accounting/commercial purposes and for tax purposes but only one financial statement established according to the Belgian GAAP or, when consolidating, according to the IAS/IFRS.
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities?
Belgian corporate income tax applies to entities that meet the following tests: the entity is a separate legal person, it is engaged in a business or a profit-making activity (legal entities not engaged in such an activity are subject to the income tax on legal entities) and it is a Belgian resident (see infra for the notion of ‘tax resident’).
Limited partnerships, economic interest groupings (EIGs) and European economic interest groupings (‘EEIGs’) are not recognised as separate taxpayers and, generally, their profits are taxed in the hands of the partners.
Under Belgian international private law, legal entities validly constituted in a foreign country are considered as such in Belgium. A foreign entity that has its place of effective management in Belgium is subject to Belgian Company law and will be considered as a resident for corporate tax purposes.
Is liability to business taxation based upon a concepts of fiscal residence or registration?
Only legal entities resident in Belgium are subject to corporate income tax. A legal entity is a resident of Belgium (called a ‘resident company’) if it has its legal seat, main establishment or place of effective management in Belgium, regardless of its place of incorporation.
Non-resident companies are subject to the income tax on non-residents regarding their Belgian-sourced income and their foreign-sourced income to the extent that it is connected with a Belgian permanent establishment.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Generally-speaking, Belgium does not have specific enterprise zones or specific favourable tax regimes.
However, many favourable tax measures are available for SMEs. A corporation is deemed to be an ‘SME’ if it does not exceed more than one of the following thresholds for two consecutive book years: 50 full-time equivalent workers; an annual turnover (excluding VAT) of EUR 9,000,000.00; a total balance sheet of EUR 4,500,000.00.
It should be noted that a specific tax regime was recently enacted for the diamond sector.
Are there any particular tax regimes applicable to intellectual property, such as patent box?
Yes. Since July 1st, 2016, the existing Belgian patent income deduction (‘PID’) regime has been abolished and replaced by an “Innovation Income Deduction” (‘IID’). Subject to certain conditions, the previous regime has been ‘grandfathered’ for five years. The new regime is envisaged to enter into force as from July 1st, 2016 (with retroactive effect). A draft law has been proposed on December 21st, 2016 and the law is expected to be approved by the Parliament beginning 2017. The new regime is based on the Modified Nexus Approach recommended by the OECD and will likely be as follows.
Corporate taxpayers will be able to deduct up to 85% of net qualifying innovation income.
- “Innovation Income” would generally refer to income derived from patents and supplementary protection certificates, breeders’ rights and the intellectual property of copyrighted software held by a company. It covers the licence fees as well as the indirect royalties embedded in the sales price of own manufactured products, any damage for the violation of an IP right or even capital gains on such innovation intangibles.
- “Qualifying income” refers to the income resulting from actual R&D activities undertaken by the taxpayer him- or herself. Outsourcing to related parties will not give rise to the deduction. Given the above, the IID will be determined by multiplying the Innovation Income by a fraction representing the ratio between the own R&D activities and the taxpayer’s outsourced R&D activities (towards related parties). If the taxpayer performs all R&D activities him- or herself, then the ratio will be equal to 1.
- “Net income” refers to the fact that the income to be deducted will be calculated on a net basis implying that current year’s deducted overall expenditure should be deducted from the current year’s qualifying Innovation Income.
Excess deductions can be carried forward to be compensated with future taxable profits.
Other favourable tax measures exist to promote R&D activities such as a partial exemption of withholding tax on wages paid to research workers or the investment deduction.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
Belgium does not allow fiscal consolidation for the purpose of corporate income tax (‘CIT’). Furthermore, there are no general provisions in Belgian tax law regarding group taxation or group consolidation. Companies are taxed on a stand-alone basis.
Is there a CFC or Thin Cap regime?
Until recently, Belgium did not have any specific CFC legislation. Belgium traditionally took the view that the application of CFC legislation was contrary to the provisions of Articles 5, 7 and 10 of the double tax treaties and made a clear reservation on this point in the OECD Commentary on the Model Convention. In 2015, Belgium introduced the so-called Cayman-tax allowing the tax authorities to tax the income of foreign low taxed entities directly at the level of the beneficiaries. However, these rules only apply to individuals. Hence, currently no specific CFC legislation is in force for corporate taxpayers. As an EU member state, Belgium must introduce the CFC-rules under the Anti-Tax Avoidance Directive by January 1st, 2019 at the latest.
Two rules on thin capitalization apply.
First, a 1:1 debt/equity ratio applies to loans granted by individual directors, shareholders and non-resident corporate directors to their company. Interest relating to debt in excess of this ratio is recharacterised as a non-deductible dividend. The interest rate can in any case not exceed the market rate.
Second, a 5:1 debt/equity ratio applies to debt if the creditor (resident or non-resident) is exempt or taxed at a reduced rate regarding the interest paid on the debt. Excess interest is considered a non-deductible business expense. The 5:1 debt/equity ratio also applies to intra-group loans. Equity is defined as the sum of the taxed reserves at the beginning of the accounting year and the paid-up capital at the end of the accounting year. Specific rules may apply, e.g. for financial companies or for group companies managing the cash pooling of the group.
As set out earlier, the ATAD, which must be transposed into Belgian law with effect from January 1st, 2019, will lead to the introduction of a new interest limitation rule.
Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
Yes, as a general rule prices and conditions agreed on between related parties will be accepted for tax purposes only in so far as the ‘arm’s length’ principle is met. A transaction between related companies may be adjusted if the companies agree on conditions that would not be agreed on between unrelated parties.
Economic double taxation caused by a transfer pricing adjustment may be limited under Belgium’s income tax treaties that contain a provision similar to Art. 9(2) of the OECD Model Convention. Within the European Union, economic double taxation of profits caused by transfer pricing adjustments made by the tax authorities may be dealt with under the Arbitration Convention.
Several specific anti-avoidance measures exist to prevent transfer pricing that is not in accordance with the ‘arm’s length’ principle. Interest, royalties and fees paid to a non-resident company or any other recipient in a tax haven may be disallowed as deductible expenses unless the taxpayer proves that the transaction is real and genuine and that the payments are not excessive. The transfer of certain assets (bonds, claims, patents, money, etc.) to a company or any other person in a tax ‘haven’ may be disregarded by the tax authorities, except if the taxpayer shows that the transaction corresponds to legitimate business needs or that he or she received an actual consideration that produced an amount of income subject in Belgium to a normal tax burden.
Following the anti-BEPS recommendation, additional transfer pricing documentation rules apply to accounting years starting from January 1st, 2016. In general, the required transfer pricing documentation consists of: a master file, a local file and a country-by-country report. These documents must be prepared by groups that meet a well-defined threshold. In terms of timing, both the master file and the country-by-country report must be filled in within a 12 month period following the closing date of the group’s financial accounts. The local file must be submitted together with the tax returns of the Belgian entities. Penalties from EUR 1,250 to EUR 25,000 may apply in the case of non-compliance.
To determine an ‘arm’s length’ price, the generally-acknowledged methods may be used, such as the comparable uncontrolled price method (‘CUP’), the resale price method or the cost-plus method.
In any event, unilateral advance rulings are available in Belgium. A clear legal framework regulates the relevant procedure. They are published without the taxpayers’ names being revealed.
Are there any withholding taxes?
Companies are subject to three different types of withholding taxes: on professional income; on real estate and on income from movable property.
- The withholding tax on professional income must be withheld on any wage (as broadly defined by the Income Tax Code, see point 10(b) above) attributed by the employer and paid to the tax administration. In some cases, the employer is entitled to a partial exemption of payment. The part of the withholding tax that is deducted but not paid to the tax administration remains at the employer’s disposal. As a result, this mechanism works as a wage subsidy to the employer. Some important exemptions apply e.g. for research workers, for new jobs created in some well-defined area and for start-up companies.
- The withholding tax on real estate is not an advance payment to final tax but is a Regional tax, independent from the income tax. The taxable basis is the indexed ‘cadastral income’ (see above). The Regions are competent to determine the basic rate and exemptions. The basic rate is increased by the provincial and municipal surcharges. The withholding tax on real estate is a deductible expense for corporate taxpayers.
- The withholding tax on income from movable property, i.e. dividends, interest and royalties. As a general rule, (Belgian) withholding tax is creditable against the recipient’s corporate income tax liability. Belgium changed the withholding tax rules to comply with the Court of Justice of the European Union’s (‘CJEU’) Santander case law.
Are there any recognised environmental taxes payable by businesses?
There are various federal environmental taxes payable by businesses: e.g. excise duties on mineral oil, a levy on energy, a contribution on electricity and natural gas or a packaging charge levied on drinks packages. Environmental taxes may also be found at the regional level, such as taxes on waste collection or on waste water.
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
As a general rule, shareholders are liable to tax on the dividend they receive but participation exemption relief applies to certain dividends distributed to resident corporate shareholders. Dividends paid by a Belgian company or through a Belgian intermediary will be subject to a withholding tax. For individual shareholders this withholding tax forms the final tax, while it forms an advance payments for corporate shareholders (which is normally credited against the corporate income tax).
A. Corporate tax
Resident companies may deduct from their profits 95% of the amount of the dividends that they receive provided that the following conditions are met:
- a minimum shareholding of 10% or EUR 2.500.000 is required (by way of reminder, this threshold does not apply for the exemption of capital gains realised on shares) at the time of the attribution or payment of the dividends (the so-called ‘participation condition’). This participation threshold does usually not apply to income received by investment companies.
- The shares have been held or will be held by the company for an uninterrupted period of at least one year (‘permanency condition’).
- The distributing company is subject to Belgian corporate income tax or a similar tax regime abroad (‘taxation requirement’). This condition is very technical and requires a careful assessment.
In the case of a lack or insufficiency of taxable profit, the remaining participation exemption can be carried forward to the next taxable periods.
B. Withholding tax
In many events, no withholding tax is due on dividends paid by a subsidiary to its parent company.
Among those exemptions, dividends allocated by a subsidiary to its parent company are exempted from withholding tax to the extent that the parent company is located in a Member State of the European Union or in a State with which Belgium has concluded a double taxation agreement.
To benefit from this exemption, the parent company must maintain or have maintained, during an uninterrupted period of at least one year, a minimum 10% share in the subsidiary’s capital. As a result of the CJEU’s Tate&Lyle (C-384/11) ruling, when the parent company is not resident of Belgium and is placed in the same conditions except that the share it holds in the capital of its subsidiary is lower than 10% but higher than 2,500,000.00 EUR, the applicable rate of the withholding tax is reduced to 1.7%.