Belgium Corporate Income Tax Reform 2017

Transcription

1 11 January 2018 Belgium Corporate Income Tax Reform 2017 This newsletter provides a summary of the main rules introduced by the 2017 Belgian Corporate Income Tax Reform (the Reform ) and other recent tax legislation, to the extent relevant for large corporate taxpayers. The Reform in essence provides for a two-phase reduction in the corporate income tax rate to 25% coupled with measures to broaden the corporate tax base, increase the attractiveness of holding companies, introduce a group contribution system and enhance tax compliance. Most of the new rules have already been adopted by the Belgian Parliament (Law of 25 December 2017 reforming the corporate income tax, hereafter the Reform Law ). However, certain provisions of the Reform Law are expected to be amended and supplemented by a repair bill to be submitted to Parliament early in 2018 (the Repair Bill ). The draft Repair Bill, of which no official text is yet available, has been sent to the Council of State for advice. This newsletter covers the measures introduced by the Reform Law in combination with the draft Repair Bill. Some of the measures will apply as of 2018 (financial years starting on or after 1 January 2018) others as of 2019 or We have listed the measures in order of their entry into force. 1. Gradual Tax Rate Reduction Applicable rate (incl. surcharges) and Companies 33.99% 29.58% 25% Qualifying small companies Progressive rates (subject to conditions) ( % to %) 20.4% on profits up to 100K (subject to conditions) and 29.58% on other profits 20% on profits up to 100K (subject to conditions) and 25% on other profits Special rates will temporarily apply for capital gains on qualifying shares for which the minimum holding period is not met (see section 2 below). Table of Contents 1. Gradual Tax Rate Reduction Measures in relation to dividends and capital gains on shares (2018) Downscaling of the notional interest deduction (2018) Annual limitation of NID and deferred tax assets (2018) Capital reduction partially treated as a dividend distribution (2018) Other measures broadening the tax base as of R&D Payroll Tax Exemptions (2018) Profit premiums for employees (2018) Measures aimed at enhancing tax compliance and recovery (2018) Deduction of a Group Contribution (2019) Hybrid mismatches (2019) Controlled Foreign Companies Taxation of a CFC income (2019) Cross-border asset transfers Exit taxation and fiscal step-up (2019) New interest deduction limitation rules (2020) Other measures broadening the tax base as of Belgium Corporate Income Tax Reform

2 The tax rate upon conversion in and transactions with a FIIS/GVBF ( Fonds d investissement immobilier spécialisé / gespecialiseerde vastgoedbeleggingsfonds ) and a SIR/GVV ( société immobilière réglementée / gereglementeerde vastgoedvennootschap ) is lowered to 12.75% as of 2018 and will be increased to 15% as of Measures in relation to dividends and capital gains on shares (2018) Dividend received deduction As of 2018, the dividend received deduction ( DRD ) is increased to 100% while all expenses related to the shareholding remain tax deductible (subject to the limitations). The DRD remains subject to the minimum participation, minimum holding and subject to tax requirements. The current exception to the minimum participation and minimum holding period conditions for investment companies remains unaffected. Capital gains exemption As of 2018, capital gains on shares will be fully tax exempt (abolition of the current 0.412% separate tax) provided the following conditions are met: > a minimum holding period of one year; > a participation with a minimum acquisition value of EUR 2.5 million or representing at least 10% of the capital (new condition); and > the taxation requirement for the dividend received deduction. In some cases, the taxation requirement will only be met partially. If so, the capital gains tax exemption will only apply to the extent this requirement is met. An exception to the minimum participation and minimum holding period conditions for the capital gains exemption is provided for investment companies. If all of the above conditions except the minimum holding period are met, the capital gains will be taxed at 25.5% (ordinary corporate income tax rate of 25% as of 2020). Tate & Lyle reduced withholding tax rate The reduced withholding tax ( WHT ) of % for dividends distributed to EEA shareholders with a shareholding representing less than 10% of the capital of the distributing company but with an acquisition value of at least EUR 2.5 million is abolished and a full exemption will be introduced subject to the same conditions as the 1,6995% rate. Abolishment of the fairness tax The fairness tax will be abolished. Belgium Corporate Income Tax Reform

3 > The elimination of Belgian tax leakage in group holding structures will increase the attractiveness of Belgium as a (intermediate) holding company location. In addition, groups can now (re)consider the use of vertical holding structures for their Belgian subsidiaries. > Capital gains on shares realized by companies with shareholdings not meeting the new minimum participation condition for the capital gains exemption will be subject to corporate income tax at the full rate (e.g. certain management companies and co-investment vehicles). A potential solution can be to invest through a company which qualifies as an investment company for Belgian tax purposes. Alternative holding structures can also be explored. > The Tate & Lyle exemption will further increase the attractiveness of shareholdings in Belgian companies for corporate shareholders in certain countries. 3. Downscaling of the notional interest deduction (2018) As of 2018, there are two major modifications to the so-called notional interest deduction ( NID ): > the NID will be calculated solely on the incremental risk capital; and > the NID in a given year cannot exceed EUR 1 million of taxable profits remaining after a series of tax deductions plus 70% of the taxable profits above EUR 1 million (see Annual limitation of NID and deferred tax assets below). The incremental risk capital will be equal to 1/5 of the positive difference between the risk capital at the end of the year concerned and the risk capital at the end of the fifth preceding year. The legally required adjustments to the risk capital will remain the same. The Repair Bill will provide that any risk capital resulting from a capital contribution by an affiliate will be excluded from the calculation base of the NID, if (i) the contribution was financed by loans; and (ii) the affiliated company claimed a tax deduction for interest payments on these loans. The NID rate remains fixed by reference to the 10-year government bond interest rate (0.746% in FY 2018). The stock of excess NID remains tax deductible subject to the currently applicable limitations. Belgium Corporate Income Tax Reform

4 > The benefits of the NID are further reduced by limiting its application to incremental risk capital and the introduction of the 70% limitation. > The incremental risk capital (calculation base for the NID) is not calculated based on the taxpayers average risk capital over a five year period as initially announced by the government. Instead a comparison is made between the risk capital of the end of the year concerned and the risk capital at the end of the fifth preceding year. This calculation method can result in unexpected (and perhaps unintended) results for certain taxpayers. 4. Annual limitation of NID and deferred tax assets (2018) As of 2018, the order in which tax deductions must be made has changed. Also, there is now an annual limitation of the use of NID and deferred tax assets. The new rules can be visualized as follows: Hence, pursuant to the above limitation, 30% of the taxable profits above EUR 1 million remaining after the first basket of deductions constitutes a minimum taxable basis in any given year. Any tax deductions that cannot be utilised because of the 70% limitation (or in relation to certain excess NID the 60% limitation) can be carried forward indefinitely. > Companies should consider if they are making maximal use of the deductions in the first basket and notably the investment deduction and the innovation income deduction, which covers a broad range of Belgium Corporate Income Tax Reform

5 intellectual property rights including patents and copy right protected software under certain conditions. 5. Capital reduction partially treated as a dividend distribution (2018) Any repayment pursuant to a decision to reduce the capital made as of 1 January 2018, can no longer be treated as a tax-free reimbursement of fiscal capital if the company reducing its capital has taxed reserves and/or incorporated tax-free reserves. The reduction of statutory capital, issuance premiums and/or amounts subscribed to upon the issuance of profit-sharing certificates will be deemed to be paid out, on a pro rata basis and in the following order, of: > fiscal capital; > taxed reserves (irrespective as to whether these are incorporated in the statutory capital); and > incorporated tax-exempt reserves. The tax consequences of the capital reduction will be as follows: > part imputed on fiscal capital: tax exempt; > part imputed on taxed reserves: dividend distribution, subject to a 30% WHT (unless WHT exemptions or reduced rates apply); and > part imputed on incorporated tax-exempt reserves: taxable dividend distribution subject to a 30% WHT (unless WHT exemptions or reduced rates apply) and subject to corporate income tax at the ordinary rate. > The new pro rata allocation rules for capital reductions are particularly relevant for companies with shareholders who cannot benefit from a dividend (withholding) tax exemption, like Belgian and foreign individual shareholders. > Apart from a compliance aspect, the rule is less relevant for capital reductions in group context, where corporate shareholders can generally benefit from dividend withholding tax exemptions and/or the DRD regime (or a foreign equivalent). This is unless the company reducing its capital has significant tax exempt reserves incorporated in its capital. > The new rules will be challenging to apply for capital reductions by foreign resident companies with Belgian shareholders. Belgium Corporate Income Tax Reform

6 6. Other measures broadening the tax base as of 2018 Introduction of the matching principle: Costs will only be tax deductible in the year to which they relate, instead of when they are incurred or paid (same as for accounting purposes). Provisions for risks and charges can only be tax exempt if they relate to (i) commitments resulting from contracts concluded during the taxable period or any preceding taxable period or (ii) a legal or regulatory obligation (other than accounting regulations). This new rule will apply to new provisions or increases of existing provisions recorded in a financial year that started on or after 1 January This new rule will have an impact on e.g. provisions in relation to maintenance works, certain disputes/envisaged settlements, liability claims, etc. 7. R&D Payroll Tax Exemptions (2018) The 80% R&D payroll tax exemption for enterprises that employ researchers with specific master degrees is broadened. For remuneration paid as of 1 January 2018, a 40% payroll tax exemption can be applied for researchers with certain qualifying professional bachelor degrees. However, the overall amount of the exemption for researchers with a bachelor degree will be limited to 25% of the total amount of the payroll tax exemption for researchers with (at least) any of the required master degrees. Companies which do not employ researchers with the required master degree apparently cannot apply this measure even if they do employ researchers with qualifying professional bachelor degrees. 8. Profit premiums for employees (2018) The profit participation (now profit premiums ) regime for employees of a company (group) has been amended and made more attractive. The new regime applies for profit premiums granted as of 1 January 2018 out of profits of a financial year ending at the earliest on 30 September The aim of the new rules is to allow companies to grant their employees a profit premium in a simple and flexible manner, without granting them the right to vote in the company. Employers can either opt for (i) an identical profit premium (equal amount/percentage of wage for all employees) or (ii) a categorized profit premium (amounts which vary, to a certain extent, for different categories of employees based on certain pre-defined objective criteria). The most important changes to the old regime of profit participations are the following: > reduction of the tax rate applicable to profit premiums from 25% to 7% (profit premiums which are granted within the framework of an investment savings plan and are subject to a subordinated loan remain subject to a rate of 15%); Belgium Corporate Income Tax Reform

7 > the limit on the amount of profits which can be granted in the form of profit premiums to employees is increased to 30% of the total gross remuneration. Under the old regime, the total amount of profit participations were limited to 10% of the total gross remuneration and to 20% of the after tax profits of the financial year; and > relaxing of the conditions for the grant of an identical profit premium which can now be granted based on a decision of an (extra)ordinary shareholders meeting 9. Measures aimed at enhancing tax compliance and recovery (2018) Tax Pre-Payments: As of 2018, the minimum basic interest rate for no or insufficient tax prepayments will be increased from 1% to 3%. Cash tax in case of a tax audit adjustment with a tax increase: In case a tax audit leads to a tax base adjustment and an application of a 10% or higher tax increase, the tax base adjustment cannot be offset by any deferred tax assets. > This measure makes it even more important for companies to carefully assess their position and defend it to the maximum extent possible during the tax audit phase already. > The only way to escape the cash tax is either by reaching an agreement during the tax audit (before an assessment notice is sent), or by convincing the tax administration or the courts not to apply a tax increase based on the applicable legal rules and the principles laid down in jurisprudence. > Companies should consider the potential State aid consequences of any agreement or settlement reached with the tax authorities. Late payment and refund rates: > The late payment interest will be set annually by reference to the 10-year government bond interest rate and will range between 4% and 10%. In 2018 this rate will be 4%. > The refund interest rate for reimbursement of taxes by the Belgian government will be set annually by reference to the 10-year government bond interest rate in the same way as the late payment interest rate minus 200 basis points. This rate will be 2% in For tax assessments made as of 2018, the refund interest will only be due from the first day of the month following the one in which tax authorities were given notice of default, once the period for repayment has expired. The month in which reimbursement is made, shall not be taken into account. Belgium Corporate Income Tax Reform

8 10. Deduction of a Group Contribution (2019) As of 2019, Belgium will have a light tax consolidation regime in the form of a group contribution with cash compensation. A Belgian group entity with taxable profits will be entitled to deduct a so-called group contribution received from a loss-making group company ( eligible party ) pursuant to a group contribution agreement. Personal scope of application: > Profitable taxpayer: a Belgian tax resident company or Belgian establishment of a foreign resident company. > Eligible party: - a Belgian tax resident company or Belgian establishment of a foreign tax resident company established in the EEA; - the parent, subsidiary with a direct participation of at least 90% or a sister company with a 90% joint parent company; - eligible for at least five consecutive years; and - exclusion of companies not subject to the ordinary corporate income tax system (e.g. companies ex art. 185bis ITC but see exceptions). The group contribution agreement: > The group contribution agreement must specify the amount of the group contribution. > The agreement can relate to one specific assessment year. > The eligible party must assume the obligation to include the group contribution in its taxable basis of the same assessment year. Preservation of tax neutrality: > The profitable taxpayer will pay the eligible party an amount equal to the income tax that would have been due by profitable taxpayer absent the relevant deduction. > The payment shall not be tax deductible for the profitable taxpayer making the payment. > In the hands of the eligible party, the payment received shall be tax exempt. Separate rules apply for the transfer of losses to the profitable taxpayer by a foreign EEA resident eligible counterparty which has suffered losses upon termination of its activities. > The group contribution system can be beneficial for certain taxpayers. > The regime is subject to stringent conditions (only for current year losses, only for direct 90% parent subsidiary/sister company relationships with a five year holding period requirement). Belgium Corporate Income Tax Reform

9 > Companies (e.g. in groups with a project-driven business model) should consider proactively taking steps now to increase the chances that they can benefit from the group contribution regime in the future. 11. Hybrid mismatches (2019) Belgium will have hybrid mismatch rules as of financial years starting on or after 1 January Hybrid mismatches entail two types of schemes, namely those leading to: > a deductible expense in respect of both: - a Belgian company or a Belgian permanent establishment; and - a foreign company or its establishment (double deduction) > a deductible expense in respect of one of the above actors albeit without a corresponding inclusion of the payment in the taxable income of the payee (deduction without inclusion), except where the non-taxation for the latter is solely due to: - the applicable tax regime, deviating from the common tax regime; or - differences in the value ascribed to a payment, including through the application of transfer pricing rules. The entities concerned must be associated enterprises (as defined by a specific law provision) and they: > either form part of the same undertaking; > or act under an arrangement where the mismatch outcome is priced into the terms of the arrangement or an arrangement that has been designed to produce a hybrid mismatch outcome (structured arrangement). Whilst the text of the law suggest that the hybrid mismatch rules only apply to arrangements between associated enterprises, the explanatory memorandum suggests that the rules also cover hybrid mismatches resulting from structured arrangements between non-related parties. The same conclusion seems to follow from the Anti-tax Abuse Directive ( ATAD ). Consequences: > In case of a double deduction: the deduction will be denied at the level of the Belgian taxpayer. > In case of a deduction at the level of the Belgian entity albeit without inclusion at the level of the foreign entity: the deduction will be denied. > In case of a deduction at the level of the foreign entity albeit without inclusion at the level of the Belgian entity: the income will be included in the taxable income of the Belgian recipient entity. Belgium Corporate Income Tax Reform

10 > Companies should be mindful of the fact that the tax authorities may attempt to apply the hybrid mismatch rules to certain arrangements between non-related parties (as well as between associated enterprises). > In determining their filing position under these rules, companies should consider the possibility that the hybrid mismatch rules would be applied by different jurisdictions at the same time. 12. Controlled Foreign Companies Taxation of a CFC income (2019) Belgium will have Controlled Foreign Company ( CFC ) rules for financial years starting on or after 1 January A CFC is a foreign company of which the Belgian taxpayer owns, directly or indirectly, the majority of the voting rights or a participation of at least 50% in the capital or in the profits. The CFC must either (i) not be subject to any income tax, or (ii) be subject to an income tax charge which is lower than half of the tax which would have been due had it been a Belgian resident company. In calculating the income tax charge, any profits that the CFC has realized through a permanent establishment of which the profits are exempt under a treaty will be disregarded. All income of a CFC will be included in the Belgian taxpayer s tax base insofar it arises from a non-genuine arrangement (or series thereof) which has been put in place for the essential purpose of obtaining a tax advantage. There is a non-genuine arrangement if the CFC would not own the assets or would not have undertaken the risks which generate all, or part of, its income if it were not controlled by the Belgian taxpayer where the significant people functions, which are relevant to those assets and risks, are carried out and which play a relevant role in generating the CFC s income. A DRD of 100% will be applied for dividends paid out by the CFC to the Belgian taxpayer, to the extent that the amount of such dividends is not higher than the profits which have been previously taxed under the CFC rules. A literal reading of the text of the law seems to indicate that these DRD rules are only applicable in case of a direct dividend distribution to the Belgian taxpayer. Also, there will be a 100% exemption of capital gains realized upon the disposal by the taxpayer of its participation in the CFC - to the extent that dividends distributed by the CFC would have benefitted from the DRD. It is currently not provided that CFC income will be proportionate to the direct or indirect shareholding of the Belgian taxpayers in the CFC. In addition, no credit for foreign taxes in the country of establishment of the CFC is currently provided. Belgium Corporate Income Tax Reform

11 > The scope of the Belgian CFC rules is limited. The computation of the CFC income requires a functional analysis in accordance with transfer pricing guidelines. 13. Cross-border asset transfers Exit taxation and fiscal stepup (2019) Belgium will have new tax rules regarding transfers of seats of companies and cross-border asset transfers made as of 1 January Step-up in case of transfer of assets to Belgium In case foreign assets are transferred to a Belgian taxpayer, the assets will be deemed transferred at real value ( valeur réelle / werkelijke waarde ) for purposes of determining depreciations, capital gains and losses and reductions in value, and not at book value, in the following scenarios: > immigration of foreign companies to Belgium; > certain cross-border reorganisations into Belgium; > transfer of assets of a foreign permanent establishment (PE) of which the profits are exempt under a tax treaty to Belgium; and > transfer of assets belonging to the foreign head office or a foreign PE of a foreign company to Belgium. If the foreign state has applied an exit taxation, the real value will in principle be deemed to correspond to the value used for the exit taxation, unless the Belgian tax authorities prove that the real value is lower. If no such exit taxation has occurred, there is a rebuttable presumption that the real value correspond to the acquisition value after deduction of any depreciations and reduction in value. Exit taxation Transfers of assets from a Belgian resident company to its foreign permanent establishment will trigger taxation of any hidden capital gains on those assets. The taxable profit will be equal to the positive difference between the fair market value of the assets and their value for tax purposes. 14. New interest deduction limitation rules (2020) As of 2020, the deduction of net interest will be limited to the higher of EUR 3 million or 30% of adjusted EBITDA. Net interest is the positive difference between borrowing costs and interest income in a given year and relates to both related and third party indebtedness. The following income/expenses will not be taken into account to calculate the net interest: > disallowed interest expenses; Belgium Corporate Income Tax Reform

12 > interest on loans concluded prior to 17 June 2016 and not fundamentally modified since that date; > interest allocated to a permanent establishment of which the interest is exempt under a double tax treaty; and > interest payments between Belgian companies and Belgian permanent establishments of entities of the same group (Belgian group entities). The notion of borrowing costs will be defined by Royal Decree but will be broader than interest as it will also include any economically equivalent expenses such as the finance cost element under a finance lease or derivative, and even guarantee and arrangement fees. The EUR 3M threshold must be allocated proportionally to all Belgian group entities. The EBITDA is not related to the accounting concept but is calculated as follows: > Taxable result after first adjustment in the tax return > Upwards adjustment for: - depreciations and reductions in value deducted in the same year; - net interest excluding the net interest that cannot be deducted for tax purposes; and - expenses due to Belgian group entities. > Downwards adjustment for inter alia: - amount of group contribution received; - income benefiting from a (partial) exemption (dividends, innovation income, patent income, treaty exempt income, profits derived from a qualified intra-eu public-private partnership project); and - revenues from Belgian group entities. Any interest that is disallowed pursuant to this limitation rule can be carried forward indefinitely and can be used to offset future profits subject to the same EUR 3 million/30% EBITDA cap. Stand-alone entities, various regulated entities such as among others credit institutions, insurance undertakings, UCITS and AIFs, certain pension institutions, public-private project companies and (according to the Repair Bill) issuers of real estate certificates, are out of scope. However, SIR/GVVs ( société immobilière réglementée / gereglementeerde vastgoedvennootschap ) are not (yet) out of scope. The Repair Bill provides that any non-utilised threshold amount ( capacity ), and even amounts exceeding said amount, can be transferred to another Belgian group entity pursuant to an interest-deduction agreement which satisfies the following conditions: Belgium Corporate Income Tax Reform

13 > the agreement identifies both parties and the threshold amount transferred. If the amount exceeds the non-utilized threshold amount in the hands of the transferor (which is legally allowed), the expenses of the transferor are disallowed to that extent; > while not explicitly stated in the draft text, the transferee can utilize the transferred threshold amount to increase its own threshold amount and thus deduct a higher amount of net interest; and > a remuneration by the transferee can be provided, which equals the income tax which would have been due by the transferee if no transfer occurred. Such remuneration is exempt in the hands of the payee and not deductible for the payor (tax neutrality). > The new interest deduction limitation rules may impact the cost of funding for some companies. As this rule is imposed by ATAD, it will with some variations, apply across the EU. > The definition of group entities for purposes of the interest-deduction agreement is broader than the one for purposes of the group contribution agreement, which allows for some tax planning. > The combination of an interest-deduction agreement and a group contribution agreement may also allow for tax planning. 15. Other measures broadening the tax base as of 2020 > Tax losses incurred by a foreign PE in a treaty country can no longer be deducted from profits of the Belgian head office (assuming foreign PE income is exempt in Belgium): - regardless of whether the PE state allows to deduct/credit the relevant PE losses; and - except for losses suffered by a foreign PE established in the EEA which have become definitive, i.e. mostly upon definitive cessation of activities in the PE state if losses cannot be deducted in such state. > The accelerated depreciation method for assets acquired or created will be abolished. > The special levy for secret commissions will be fully disallowed as an expense. Hidden profits will be included in the company s taxable profits and taxed at the ordinary corporate income tax rate. > Administrative fines will be disallowed as an expense (including e.g. social security fines). Belgium Corporate Income Tax Reform

14 > There will be an increase of the fixed lump sum taxable basis for taxpayers failing to submit their tax return in time. Contacts For further information please contact: Henk Vanhulle Partner (+32) henk.vanhulle@linklaters.com Nicolas Lippens Partner (+32) nicolas.lippens@linklaters.com Caroline Borgers Managing Associate (+32) caroline.borgers@linklaters.com Wouter Verhoeye Associate (+32) wouter.verhoeye@linklaters.com Matthieu Possoz Associate (+32) matthieu.possoz@linklaters.com Authors: Henk Vanhulle, Nicolas Lippens, Caroline Borgers, Wouter Verhoeye, Matthieu Possoz Cette publication a pour seul objet de présenter certains sujets de façon non-exhaustive. Elle ne constitue pas un conseil juridique. Pour toutes questions relatives aux sujets abordés dans ce document, vous pouvez vous adresser à vos contacts habituels ou aux auteurs. Linklaters LLP. Tous droits réservés 2018 Linklaters LLP est une Limited Liability Partnership de droit anglais enregistrée en Angleterre et au Pays de Galles sous le numéro OC Le titre d'associé ou de partner utilisé à propos de Linklaters LLP, se réfère aux members de la Limited Liability Partnership, ainsi qu'à des collaborateurs indépendants ou, en dehors de la Belgique, employés de Linklaters LLP ou d'entités affiliées auxquels est reconnu un rang équivalent. La liste des members de Linklaters LLP, des autres personnes ayant le titre d'associé et de leurs qualifications professionnelles est disponible au siège social de la LLP, One Silk Street, London EC2Y 8HQ, England ou sur Notre site contient des informations importantes sur notre statut juridique et réglementaire. We currently hold your contact details, which we use to send you newsletters such as this and for other marketing and business communications. We use your contact details for our own internal purposes only. This information is available to our offices worldwide and to those of our associated firms. If any of your details are incorrect or have recently changed, or if you no longer wish to receive this newsletter or other marketing communications, please let us know by ing us at marketing.database@linklaters.com. Linklaters LLP Rue Brederode 13 B Bruxelles Téléphone (+32) Téléfax (+32) Linklaters.com Belgium Corporate Income Tax Reform