The federal government recently announced a new set of tax measures as part of a new federal budget agreement. A bill of 30 July 2013 adopting these new measures has now been published in the Belgian State Gazette.
Among these new tax measures, a ‘fairness tax’, designed to target large companies with low taxable profits that still pay dividends to their shareholders, is introduced. This new tax has been previously criticized for its application being possibly contrary to Belgian and European tax law. This has however not prevented the Federal Parliament from adopting the current text.
Also, the withholding tax regime for capital gains realized on certain accumulating funds is modified, and the tax treatment of Belgian regulated investment companies is amended. Further, lawyers will be subject to VAT, excise duties on tobacco and alcohol are increased, and the recently increased annual tax on credit institutions is increased yet again.
Finally, by means of a bill of 17 June 2013, the application of the secret commission tax of 309 % has been toned down.
I - Fairness tax
1. Taxable base
According to the new bill, the fairness tax applies if the distributed dividends are higher than a company’s final taxable result subject to corporate income tax, after application of the available tax deductions. Basically, it will apply when a company distributes dividends, and the taxable profit is (partially) offset against notional interest deduction and/or carried forward tax losses. A distribution of dividends should therefore be carefully timed.
According to the description of dividends provided in the bill, liquidation bonuses and acquisition surpluses, whether or not at the event of a corporate restructuring (merger or demerger), are not targeted by the fairness tax.
Its tax base is calculated according to the following three-steps scheme:
(i) The difference between the amount of dividends distributed during the taxable year and the final taxable base effectively subject to corporate income tax is determined;
(ii) In case the difference determined as under (i) should be positive, it is reduced with the amount of distributed dividends originating from previously taxed reserves; to prevent abuse, the draft bill provides that only dividends originating from previously taxed reserves which were reserved until tax year 2014 (income 2013) can be deducted.
(iii) The amount resulting after (i) and (ii) is then reduced according to a percentage based on the ratio between the amount of deducted notional interest and previous year tax losses on the one hand, and the initial fiscal result after application of ‘first operation’ deductions.
2. Tax rate – separate taxation
The rate to be applied on the taxable base determined as described above amounts to 5,15 % (crisis contribution included). The fairness tax will apply as a separate tax on top of the corporate income tax.
3. Large companies only
Companies that are regarded as small companies (Article 15 of the Company Code) will not be subject to the fairness tax. It will however apply to Belgian branches of foreign companies, in proportion to the positive accounting result of the branch, if dividends are distributed by the foreign company.
4. Tax year 2014 (income 2013)
The fairness tax will apply as of tax year 2014 (income 2013).
II - Capital gains on certain funds
The sale of shares or units in so-called capitalisation collective investment entities (“Organismes de placement collectif en valeurs mobilières (OPCVM) de capitalisation”), investing more than 25% in debt will be treated regardless of the fact that they have a European passport or not. This new measure applies as from 1 July.
Prior to the new bill, such capital gains were only taxable when the entity had a European passport. Part of the capital gains realized on the sale of shares or units in these entities without European passport will be considered as interest, and therefore subject to withholding tax at the rate of 25 %.
III - Tax regime Belgian regulated investment companies
The tax regime of Belgian regulated investment companies is amended. The withholding tax levied on Belgian source dividends paid to a Belgian regulated investment company will now constitute the final tax in their hands. A credit or refund of this withholding tax can no longer be obtained. Such a refund credit will only remain available for certain entities which are entirely composed of pension funds.
IV - New reporting requirement in individual income tax return
The existence of private wealth structures (‘structures patrimoniales privées’ – ‘private vermogensstructuren’) such as partnerships, foundations and trusts set up by individual residents are to be reported in the yearly income tax return. The new obligation will apply as from tax year 2014 (income 2013). Such a reporting obligation already exists for foreign bank accounts and foreign life insurance products.
V - VAT for lawyers
Lawyers in Belgium will become subject to VAT as from 1 January 2014. This means that lawyer’s fees, which are currently VAT exempt, will be subject to the VAT rate of 21 %.
VI - Annnual tax on credit institutions
The annual tax on credit institutions, which was increased only months ago, is yet again to be increased. For 2013, a rate of 0,1200 % will apply instead of the previous rate of 0,0965 %. For 2014, the rate is increased from 0,0925 % to 0,1929 %.
VII - Secret commissions tax of 309 % - new tolerance
Belgian tax authorities can levy the secret commission tax at a rate of 309% on certain remunerations and other payments which are not reported by the taxpayer on the appropriate forms and tax sheets. The bill of 17 June 2013 has now provided a new tolerance; as from tax year 2014 (income 2013), the secret commissions tax is not to be applied if the following conditions are fulfilled:
- The paying company identifies the beneficiary of the payment;
- The beneficiary is taxed on the payment received in personal income tax, which implies that the 3-year assessment period has not yet expired;
- The payment made by the company is not deducted as a professional cost, but reported as a disallowed expense. In his response to Parliamentary Question of 25 June 2013 however, as confirmed in a recent Circular Letter of 22 July 2013, the federal finance Minister however indicated that deduction of the payment by the company would only be refused in case of ‘bad faith’ (mauvaise foi – kwade trouw) of the paying company.