Update on new tax measures
The Belgian federal government has reached an agreement on several tax measures in the framework of the 2013 budget control and 2014 budget. Below we highlight the measures affecting companies. This note is based upon the information publicly available and will need to be updated once a draft bill is submitted to Parliament. As the new measures have not yet been officially announced, it is possible that some of the measures below will still be modified or abolished.
VAT on lawyers’ fees
As of 1 January 2014, services rendered by advocaten/avocats will be subject to VAT at the rate of 21%.
Minimum tax - the “fairness tax”
A minimum tax, referred to as the “fairness tax”, will be introduced for companies.
The fairness tax may become relevant as soon as the distributed dividends exceed the net taxable base (taking into account the so-called tax adjustments).
The taxable base of the fairness tax would be determined as per the following formula:
[(A-B) - C] x D%
A: distributed dividends;
B: net taxable base after all tax adjustments (“bewerkingen”/“operations”);
C: previously taxed reserves built up prior to tax assessment year 2014 (financial year ending on 31 December 2013 or later but prior to 31 December 2014). This means that taxed reserves built up as of tax assessment year 2014 cannot be deducted. The origin of the previously taxed reserves would be determined by the Last In First Out method; and,
D: percentage which expresses the proportion between:
(i) the net taxable base increased by the amount of the notional interest and of the carried forward tax losses deducted in the current year (nominator); and,
(ii) the amount of the taxable base before the tax adjustments (i.e. the taxable base after the so-called first tax adjustment) (denominator).
The fairness tax will not be tax deductible. The fairness tax is designed as a corporate income tax levied by way of enrollment. We therefore expect that the fairness tax will be subject to the 3% crisis contribution so that the fairness tax rate will be 5.15% (5% plus the 3% crisis contribution). Payment thereof can be made by way of advance tax payments. The entry into force of the fairness tax would be tax assessment year 2014.
The tax will be applicable to Belgian resident companies other than SME’s. The tax would also be applicable to Belgian branches of foreign companies, i.e. upon a dividend distribution by the foreign head office, the pro rata portion originating from the Belgian profits may be subject to the fairness tax.
It is important to note that the fairness tax will not become due to the extent that profits are set off by (i) treaty exempt profits, (ii) tax-exempt gifts, (iii) the Dividend Received Deduction, (iv) the Patent Income Deduction, (v) the investment deduction and/or (vi) the stock of non-utilised notional interest deductions carried forward.
The fairness tax will affect companies that will distribute dividends out of taxable profits which have not been subject to tax as (or to the extent that) said profits have been set off against notional interest or against carried forward tax losses.
It can be questioned whether the fairness tax is compatible with the EU Parent–Subsidiary Directive (if the fairness tax is to be considered as a dividend withholding tax, the fairness tax would violate the EU Parent–Subsidiary Directive).
We obviously require the draft bill to perform such analysis. More generally, the interpretation of the fairness tax as well as its consequences in practice will very much depend upon the exact wording of the draft bill.
The expected revenue of the fairness tax is EUR 140 million for 2013 and EUR 215 million for 2014.
Dividend Received Deduction
Under current Belgian tax law, dividends on shares may benefit from the 95% Dividend Received Deduction if the share participation represents at least 10% of the capital of the subsidiary or if the acquisition value of the participation is equal to at least EUR 2.500.000.
The Government would have decided to abolish the EUR 2.500.000 threshold.
Such abolishment would trigger double economic taxation if the share participation does not represent at least 10% of the capital of the subsidiary.
The expected revenue of this measure would be EUR 22 million for 2013 and EUR 25 million for 2014.
In the meantime, we have been informed that other alternatives are being analysed.
Reinforcement and harmonisation of sanctions applicable to co-authors
Around October 2013 and after consultation with the relevant sectors, proposals will be issued to reinforce and harmonise the sanctions applicable to intermediaries participating in fraudulent constructions.
Necessary initiatives will be taken to reinforce compliance with the reporting obligation under the anti-money laundering legislation.
Pursuit of fight against offshore constructions
No further details are known yet.