belgium budget 2012

Belgium - Budget 2012

Overview of Tax Measures

Belgian budget 2012 – overview of tax measures

Agenda

► Introduction

► Corporate tax measures

► Taxation of company cars

► Personal income tax measures

► Pension taxation

► Withholding tax measures

► Tax on the conversion of bearer financial instruments

► Combat of tax fraud

► Miscellaneous


Introduction

► Government Di Rupo I: budgetary exercise of EUR 11.3

billion covering savings and additional income

► Hypothesis: economic growth of 0.8%

► Projected growth reduced to 0.5% (ECB, NBB/BNB) or less (Luc

Coene) – need for additional EUR 1 to 2 billion

► Partially rejected by EU Commission (NID/WHT)

► Budget plan partially put into legislation

► Submission via amendments by Members of Parliament

► Second bill of program law probably to be submitted in

January 2012 for remaining measures

► New budget round in March 2012


Introduction

► Tax measures: impact in 2012 (EUR 3,449 mio)

► Related measures (combat fraud, …): EUR 3,220 mio (2012-2014)

EUR (in mio) Percentage

Notional interest deduction 1,620 + 45.6%

Taxation of capital gains on shares 150 + 4.2%

Company car taxation 200 + 5.7%

Externalization pension provisions 30 + 0.8%

Stock options 20 + 0.5%

Benefit in kind housing, etc. 170 + 4.8%

WHT increase and solidarity levy 917 + 26.0%

Stock exchange tax 50 + 1.4%

VAT pay-TV 84 + 2.4%

VAT notaries and bailiffs 100 + 2.8%

Excises 158 + 4.5%


Corporate tax – Notional interest deduction (old)

► Deemed deduction on qualifying Belgian GAAP equity

(reduced with items such as financial fixed assets &

foreign branch-income, ...)

► Deduction linked to 10 year OLO but capped to 3.8 % for

tax years 2011 and 2012

► Tax year 2012: 3.425 % (3.925 % for SMEs)

► Full carry-forward but limited to seven years



► Mostly used by

► Former BCCs

► Belgian groups

► German, French, Dutch, Scandinavian groups

► Existing (not new) US companies

► Cannot be used against abnormal or benevolent income



► Tax year 2010: NID used = 16,3 bio (PV-QP 25/07/2011)

► Tax year 2010: NID carry-forward = 12.6 bio

► Estimated NID equity 2010: + 330 Bio (applying 4.973%)

► Unique measure? No! Netherlands, Luxembourg, Switzerland

have quasi-similar measures

► Also other financing regimes and alternatives (EU & non-EU)



Strategy

► Deduction of deemed interest on equity

Tax Analysis – Belgium

► No capital duties in Belgium

► Interest income is taxable at 33.99% but the Belgian ETR

(effective tax rate) is reduced by:

– NID – FY 12.31.2011: 3.425% on qualifying risk

capital significantly reduces ETR.

– ETR depends on incoming interest rate

– Foreign tax credit for IWHT available

► Domestic WHT exemption for dividends to treaty parents

► Access to large treaty network and EU legislation to tackle

IWHT

► Withstands foreign CFC legislation (substance related)

► Considered EU state-aid compliant

► NID is automatically applicable (no ruling required; easy

and straight-forward; no beneficial ownership issues)

► Existing Belgian BCC company can be used

► With new US treaty’s LOB provisions ideal to finance US

operations for Belgian & EU groups

► APA can be obtained from the Belgian ruling commission

Loan

- + -

NID and foreign tax credit

( Interest

Interest

Loan

) -

Parent

(Foreign) Op Co

Belgian NID Co


Corporate tax – Notional interest deduction

► Adopted (applicable as from TY 2013)

► NID rate

► Still based on 10 year OLO but reduction of cap to 3% (3.5% for SME)

► Average 10-year bond rate 2011: 4.191%

► Budget note: reduction of cap to 3% for period 2012-2014 - as from

2015: NID rate will be determined by law

► Budgetary impact (together with measures regarding carry-forward):

EUR 1,620 mio (+ 45.6% of the tax measures)

► Dropped from the earlier note Di Rupo: no exclusion of mandatory

equity from NID basis (minimum capital and legal reserves)



► Modification still in the pipeline

► Abolishment of NID carry-forward for future excess NID!!!

► Limitation of deduction of existing stock excess NID

► Last operation of the tax return/calculation (after deduction of tax

losses and before application of the tax rate)

► Maximum deduction: 60% of residual taxable base

► No limitation for first mio EUR

► Carry-forward for excess to next taxable period (+1)

► Carry-forward expected to be limited to seven years (exception: period

of limitation is extended when excess NID is unused due to 60%

limitation)

► Problem when large tax loss carry-forward?

► ETR upon use is > 13%, effect on deferred tax assets?


Corporate tax - Notional interest deduction Example - Existing NID carry-forward

Tax year Excess

NID

Expire

date

Balance Extended

expire date

Losses

NID

2007 1,000 2014 0 N/A 300

2008 1,200 2015 1,200 N/A 0

2009 900 2016 900 N/A 0

2010 1,100 2017 1,100 N/A 0

2011 800 2018 800 N/A 0

Total 5,000 4,000 300

Tax year 2014 EUR

Taxable basis before deduction of excess NID 700

NID carried forward – 2007 -700

Taxable basis after deduction of excess NID 0


Corporate tax - Notional interest deduction Example - Existing NID carry-forward (cont’d)

Tax year Excess

NID

Expire

date

Balance Extended

expire date

Losses

NID

2007 0 2014 0 N/A 300

2008 1,200 2015 120 2016 0

2009 900 2016 900 N/A 0

2010 1,100 2017 1,100 N/A 0

2011 800 2018 800 N/A 0

Total 4,000 2,820 300

Tax year 2015 EUR

Taxable basis before deduction of excess NID 1,300

NID carried forward – 2007 0

NID carried forward – 2008 -1,180

(1,000 + 60% of 300)



Corporate tax - Notional interest deduction Example - Existing NID carry-forward (cont’d) Tax year Excess NID Expire date Balance Extended

expire date

Losses NID

2007 0 2014 0 N/A 300

2008 120 2015 0 2016 0

2009 900 2016 8 2017 0

2010 1,100 2017 1,000 N/A 0

2011 800 2018 800 N/A 0

Total 3,300 2,800 300

Tax year 2016 EUR

Taxable basis before deduction of excess NID 1,020




(40% of 20)



► Action points / points of attention

► Check your stock of excess NID and projected profits to verify

whether action needs to be undertaken to accelerate the use of

excess NID

► Review your treasury policy and forecast taxable spread

► Consider possible impact on the deferred tax assets (e.g. valuation

allowance)

► Limit percentage to 3%, only short-term funding

► Consider finance alternatives (or second treasury center)


Corporate tax – Thin capitalization (general)

► In many countries to prevent tax avoidance by excessive

leveraging

► Reduction of possibility to deduct interest for tax purposes

► Thin Cap limitations depend on debt/equity, cash-flow,

Ebitda, possibility of debt recharacterization or a

combination thereof

► Some Thin Cap apply to all debt, some to related party

debt only

► Intercompany debt has many definitions, so does equity


Corporate tax – Thin capitalization (current regime)

► Two Thin Cap rules in Belgium: 7:1 and 1:1

► Current legislation: specific 7:1 Thin Cap applies where

the beneficial owner of the interest is a person that is not

subject to tax or if the income is subject to a tax regime

that is significantly more advantageous compared to the

Belgian tax regime


Corporate tax – Thin capitalization (new regime)


► No longer limited to interest paid to beneficial owner who is not

subject to income tax or who is subject to a far more beneficial

regime for interest income

► Change of thin cap ratio from 7:1 now to 5:1

► Only for intra-group loans

► Definition of group in accordance with BCC rules

► Condition for BCC regime purposes

► Companies under central management as a result of participations

► Participation (direct or indirect) at least 20% in share capital or voting rights

► Estimated budgetary impact EUR 100 mio (part of combat of fraud

and correct application of the law)

► Thin Cap is more restrictive in other EU and OECD countries, e.g.

Germany, France, US, China, the Netherlands, France



► In the „annex to the budget‟ it is mentioned that

► Leverage is best combined with NID that will going forward not be

higher than 3%

► There is an indication that now NID is changed, many large

companies have the intention to put up constructions with low

capitalisation

► The example of a PPL is given with a „picture‟ ..., yet all PPL were

ruled by the tax authorities, providing legal certainty


Corporate tax – Thin capitalization (new regime) - Hybrid loan/security – PPL (annex)

PPL - Hybrid

► The use of a hybrid financing instrument creates a tax deduction in the

debtor’s country as the instrument qualifies as debt, while it results in

tax-exempt income in the recipient country, where the instrument

qualifies as equity

► Intermediate country (debtor of hybrid instrument) on lends the funds

realizing a taxable spread

Tax Analysis – Luxembourg/Netherlands

► No income pick-up at level Lux /Dutch Co (“equity characterization” )

► Lux / Dutch DWHT exemption / reduction based on domestic law

Tax Analysis – Netherlands

► Hybrid loan considered equity from a Dutch / Lux tax perspective,

► Interest income on hybrid loan should be treated as dividend for Dutch

/ Lux tax purposes and should therefore be exempt under participation

exemption rules

Tax Analysis – Belgium

► Interest deduction at level Bel Co (debt characterization of profit

participating loan or security)

► No Belgian IWHT on payments to Lux / Dutch Co

► A small at arm’s length taxable spread required at level Belco

► Broad Treaty Network

On the basis of a Belgian / Luxembourg / Dutch ruling with full

transparency

EU context?

Loan

Subscription

to PPL/PPS

Interest

Dividend

Parent

LuxCo

NL

Belgium

(former NID co)

OpCo



► Open questions - what about

► The definition of (net) equity (Tax Equity or Belgian GAAP)?

► EU context ? Lankhorst -Hohorst?

► Net debt (financial institutions, treasury and securitisation

entities)?

► Debt guaranteed by group-companies?

► Factoring? Renting? FX intercompany loans that are potentially

swapped?

► Financial Fixed Assets or other shares qualifying for the dividend

received deduction?

► “5” – only loans where interest is non-taxable or tax exempt at the

level of the beneficiary?


Corporate tax – Thin capitalization


► Check your qualifying debt/equity ratio to verify whether equity

needs to be reinforced

► Consider an equity increase, if required, e.g. by contribution

shares into share capital

► Consider restructuring intercompany leveraging if funding is

provided by a related entity not subject to tax on the interest

income

► The exact situations in which the 5:1 would apply are not yet

known but it will likely be a “soft” measure


Corporate tax – Notional interest deduction – PPL – Effective Tax Rate (ETR)

2,00% 2,50% 3,00% 3,50% 4,00% 4,50% 5,00% 5,50% 6,00%

ETR -17,0% -6,8% 0,0% 4,9% 8,5% 11,3% 13,6% 15,5% 17,0%

ETR 0,98% 1,19% 1,33% 1,43% 1,51% 1,57% 1,62% 1,65% 1,69%

ETR -1,06% 0,28% 1,18% 1,82% 2,30% 2,68% 2,98% 3,22% 3,42%

-20,0%

-15,0%

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

20,0%

ET

R

NID - capped NID rate of 3% PPL 1 – 6% equity – 94% PPL PPL 2 – debt/equity ratio of 5-to-1

Finco ETR overview

Intercompany Financing Rates

NID

PPL 2

PPL 1


Corporate tax – Notional interest deduction – PPL – Future?

► NID may under circumstances still be attractive for „low

yield‟ financing, that is for short-term € or USD funding,

cash-pooling, factoring or sub-financing of a main group

treasury center …

► Possibly some „budget-savings‟ as existing „NID built up‟

will likely be spread out over a much longer period, but far

from certain

► Intercompany loan conditions are best set to match 3%

cap – no longer NID carry-forward


Corporate tax – Notional interest deduction – PPL – Future?

► PPL could possibly still be attractive

► Especially for higher yield financing (> 3%)

► Even after introduction of the proposed 5:1 debt/equity ratio

► But potentially the „new general anti-abuse‟ article could affect

PPLs

► Recently, the ruling commission has put these structures on hold

(awaiting the modification of the Thin Cap rule and the general

anti-abuse provision (Art. 344, §1 ITC))

► What happens with existing rulings?

► Belgian & foreign groups with Belgian treasury centers

might consider other EU-OECD alternatives


Corporate tax – Capital gain on shares


► Taxation at 25% of capital gains on shares held for less than one

year (exception to principle of tax exemption of capital gains)

► Capital losses remain non-deductible

► Potential exception for trading and investment companies as

securities are considered stock?


► Structure your shareholding to meet the one year period

► Consider other (sub)holding structure for short-term investments

► Consider fixing the book value at current fair market value


Corporate and personal income tax Company cars

► Adopted (applicable as from 1 January 2012)

► Change to the calculation formula for benefits in kind (BIK) for

company cars

► Limitation to deduction of lump sum commuting cost

► Additional disallowed item related to company car costs


► Change to the calculation formula for BIK company cars

► Car list price: amount invoiced, including VAT and options, but

excluding rebates and discounts

► Amount invoiced: also for second hand cars and leased cars

► Leased cars: amount invoiced, including price of the option to buy

► Private kilometers are not relevant anymore


BIK = car‟s list price x CO2 coefficient x 6/7



► Change to the calculation formula for BIK company cars

(cont‟d)

► CO2 coefficient

► Basic coefficient

► 5.5% for emission

► 95 g/km (diesel engine)

► 115 g/km (fuel engine)

► Higher CO2 emission levels

► Increase with 0.1% per gram (maximum coefficient: 18%)

► Lower CO2 emission levels

► Decrease with 0.1% per gram (minimum coefficient: 4%)

► Minimum amount BIK

► EUR 1,200 (2012 – tax year 2013)

► Formula will be reviewed annually to take into account the

evolution of the CO2 emission levels


Car type Current BIK

(7,500 km)

BIK new regime

Audi A6 3,0 TDI EUR 2,397.75 *EUR 3,640.37

BMW X5 xDrive30D 245 EUR 3,363.75 EUR 7,380.21

Mercedes-Benz CLS 350 CDI I EUR 2,742.75 EUR 7,254.85

Mini One D EUR 1,707.75 **EUR 1,200.00

* See below

** Minimum BIK

► Example: Audi A6 Diesel

► List price: EUR 42,900

► CO2 level: 139 g/km

► CO2 coefficient: 5.5% + 4.4% = 9.9%

► List price x CO2 coefficient x 6/7 = EUR 3,640.37



BIK 2011 BIK 2012 % 2011 2012

Amortization (14,225.20

EUR/Y)

30% 4,267.50 4,267.50

Benefit in kind 2,742.75 7,254.85

- Fuel (30%) 822.82 2,176.45 25% - 205.70 - 544.11

- Other car expenses (70%) 1,919.93 5,078.40 30% - 575.98 - 1,523.52

Disallowed expense 3,485.82 2,199.87

Additional disall. exp. (17%) 1,233.32

Total non deductible 3,485.82 3,433.19

► Example: Mercedes CLS 350 CDI I

► List price: EUR 71,126 (amortization in five years)

► CO2 level: 159 g/km

► CO2 coefficient: 5.5% + 6.4% = 11.9%

► List price x CO2 coefficient x 6/7 = EUR 7,254.85




► Limitation of deduction of lump sum commuting cost of

EUR 0.15 per km to taxable benefit in kind

► Previously based on the administrative commentary

► Disallowed item company car costs (corporate tax)

► 17% of benefit in kind (car‟s list price x CO2 coefficient x 6/7)

► Disallowed item is minimum taxable base

► No tax deductions : DRD, NID, tax losses, investment deduction, …


Corporate and personal income tax – Company cars


► Review your car fleet – consider alternatives

► Reconsider the remuneration package of employees/directors

involved (e.g. minimum salary threshold to benefit from the

corporate income tax rate for SME)

► Consider having the lease taken on by the employee, reimbursing

the employee for the lease and reimburse the professional mileage

of the employee (if the amount is considerable) instead of

providing free use of a company car

► Compare effect on BIK with calculation tool on our website

(http://www.ey.com/BE/en/Services/Tax/Calculate_new)

http://www.ey.com/BE/en/Services/Tax/Calculate_new


VAT – BIK – Comparison “old” and “new”

75

%

45

,

2

45

,

2

25

%

50

%

VAT

deduction

limits

“Old”

Always 50%

limitation +

Payment of VAT

based on BIK

Company use


VAT – BIK – Comparison “old” and “new”

75

%

45

,

2

25

%

50

%

VAT

deduction

limits

“New”

50%

limitation

Company use

New

limitation


VAT – BIK – Where are we?

► Company cars

► 2011: “tolerance” to use old calculation methods

► No payment of VAT on BIK if company use equals or exceeds 50%

► 2012: decision would remain but with calculation per company

instead of per car

► No decision taken yet

► Immovable property (pm): decision remains in force

► Also for 2011

► Quid other BIK?


VAT – BIK company cars – Action points

► No certainty at this stage which system will be applied to

calculate the VAT deduction for company cars

► Action required by companies once a final decision is

published by the VAT authorities

► Decide to comply or not with calculation methods proposed by the

VAT authorities (most probably fixed per company)

► Comparison with actual situation (work-home distances, different

categories of employees, amount of costs involved, possible VAT

impact, etc.)

► Abandon 50% deduction (downwards – upwards)?

► VAT calculation for the past

► VAT calculation for 2011: pay VAT on BIK or (only) limit VAT

deduction to 50%?

► Revise previously taken positions?


Personal income tax – Stock options


► Increase of benefit in kind from 15% to 18% of the value of the

underlying shares

► Increase of reduced benefit in kind from 7.5% to 9% of the value of

the underlying shares

► Applicable to stock options offered as from 1 January 2012

► Reference point is date of offer (text of the law: “offertes /

aangeboden”), not date of grant (text of justification to the amendment:

“toegekend / attribuées”)


Personal income tax – BIK housing/utilities


► Increase of the BIK for heating from EUR 1,480 to EUR 1,820

► Increase of the BIK for electricity from EUR 740 to EUR 910

► Increase of the BIK for free housing for house with a notional

income exceeding EUR 745

► Currently: 100/60 x notional income x 2

► 2012 : 100/60 x notional income x 3.8

► Amounts to be subject to indexation annually


► Reconsider the remuneration package of employees/directors

involved (e.g. minimum salary threshold to benefit from the

corporate income tax rate for SME)


Personal income tax – Tax deductions

► Adopted (applicable as from TY 2013)

► Abolishment of tax reductions for ecological investments (solar

panels, …), except for investments in isolation of roofs


► Conversion of deductions into tax reduction at 45%

► Deduction for only own dwelling, deduction for child care expenses

and gifts

► Exception: alimony payments remain tax deduction

► Other tax reductions (life insurance, own dwelling taxation (old

regime), etc.): tax reduction at 30% instead of tax reduction at

adjusted average tax rate (between 30% and 40%)


Corporate and personal income tax Pensions


► Personal income tax

► Modification of tax treatment of pension payments

► Modification of tax treatment of personal pension contributions

(2nd and 3rd pillar)

► Corporate income tax

► Mandatory externalization of pension provisions

► Modification of the 80% rule


Personal income tax - Pensions

► Still in the pipeline: modification of treatment of payments

and contributions

► Pension payments (second pillar): increase of tax rate on

payments (part relating to employer contributions)

► Current situation

► Payment at ages 60 to 64: 16.5%

► Payment at age 65: 10%

► New situation



► Payment at age 62 to 64: 16.5%



Personal income tax - Pensions

► Still in the pipeline: modification of treatment of payments

and contributions (cont‟d)

► Personal pension contributions (second and third pillar)

► Current situation: tax reduction at adjusted average tax rate (between

30% and 40%)

► New situation: tax reduction at 30%

► Actions points / points of attention

► Postpone your pension payment to age 65 (tax at 10%) or ages

62-64 (tax at 16.5%)

► Alternatively: organize your pension payment before entry into

force for taxpayers at age 60 or 61 (if possible, depending on date

of entry into application)


Corporate income tax - Pensions

► Modification still in the pipeline: mandatory externalization

of individual pension promises (financing via internal

provisions is no longer allowed)

► Existing internal provisions: externalization within three years

► Insurance premium tax

► 4.4% on new insurances

► 1.75% insurance tax in case of externalization of internal pension

provisions


Corporate income tax - Pensions

► Modification still in the pipeline: adaptation of 80%-rule

► Limitation of deductibility of complementary pension contributions

based on amount of pension payment upon retirement

► Currently: cap of 80% of last annual gross salary

► Introduction of an additional cap: pension of the highest public official

(gross EUR 72,480.72 per year or EUR 6,040.06 per month)


Corporate and personal income tax Pensions


► Provide for the necessary funds for externalization

► Revise pension plans to meet the adapted 80% limitation

► Consider reducing your 'periodic income' required to meet the former

80% reduction, considering the lower maximum cap that applies going

forward

► Consider the possibility for back-service individual pension

promises for tax year 2012 (depending on date of entry into

application of new rules)

► Consider potential consequences as regards transition from the

old to the new regimes, taking into account built-up reserves (to be

analyzed under the new law)


Withholding tax

► Adopted (applicable to payments as from 1 January 2012)

► Increase of WHT rate on interest and reduced WHT rate on

dividends

► Introduction of a solidarity levy

► Introduction of novel reporting requirements for withholding agents


Withholding tax

► Increase of WHT rate for interest and reduced dividends

to 21%

► Exceptions

► Interest on qualifying savings accounts: 15% on interest exceeding

the exempt amount (EUR 1,830 for 2012)

► Interest on debt instruments issued prior to 1 March 1990: 25%

► Royalties: 15%

► Liquidation boni: 10% (other than boni paid by EU passported

funds that are invested for more than 40% in debt claims: 21%)

► Share buy-back boni: 21% (0% for share buy-backs executed

through the stock exchange (cf. 264bis ITC) or done by corporate

funds (cf. art.21, 2° ITC) (0% WHT) that are not EU passported

funds that are invested for more than 40% in debt claims (21%

WHT)


Withholding tax


to 21%

► Exceptions

► Distributions by non-Belgian funds organized as a co-ownership

pool of assets (cf. FCP/GBF) that have not provided a breakdown

in accordance with article 321bis ITC: 25%

► Dividends distributed by residential REITS: 0%

► Dividends other than

► Dividends distributed on VVPR shares

► Dividends distributed by Belgian corporate investment funds: 25 %


Withholding tax


to 21%

► Exceptions

► Interest on government debt securities issued and underwritten

between 24 November 2011 and 2 December 2011: 15% (cf. art.

534 ITC)

► Doubts regarding compatibility with principle of non-discrimination and

EU free movement of capital

► Finance Minister: no problem since not limited to Belgian state bonds


Withholding tax

► Extra solidarity levy

► Extra levy of 4% (no municipality surcharge)

► Application, at the option of the beneficiary

► At source (standard); or

► Through assessment (optional) via reporting to the National Bank at

the request of the beneficiary

► Application at source

► 4% on the amount exceeding EUR 20,020

► Applicable to the net amount of interest and dividends exceeding

EUR 20,020 (in 2012), excluding

► Dividends and interest payments subject to the 10 or 25% rate of WHT

► Interest paid on government debt securities issued and underwritten

between 24 November 2011 and 2 December 2011; and

► Interest from qualifying savings accounts


Withholding tax

► Extra solidarity levy ► What about interest and dividends subject to 0% withholding?

► Income contemplated by article 21 (liquidation and share buy-back boni paid by corporate funds and certain income from life insurances) are items carved-out from article 17 and should therefore not be subject to the levy

► Interest and dividend income otherwise exempt from withholding tax /solidarity levy (e.g. dividends paid by a residential REIT or boni on share buy-backs executed through the stock exchange) is not explicitly excluded but the exclusion could be defended on the basis of the new Article 174/1, §3 ITC (“The provisions of Title VI in relation to withholding tax are applicable to the solidarity level except when provided otherwise”)

► Title VI contains the domestic exemptions from WHT and constitutes the legal basis of the exemptions laid down in the RD ITC

► It would have been clearer to specifically refer to exempt interest and dividend income in the definition of the scope of the solidarity levy


Withholding tax

► Extra solidarity levy

► Computation of the EUR 20,020 threshold

► For the computation of the threshold account must be taken of all

interest and dividend income obtained by the taxpayer with the

exception of

► Liquidation boni contemplated by article 171, 2°, f)

► Interest paid on government debt securities issued and underwritten

between 24 November 2011 and 2 December 2011

► Interest and dividends contemplated by article 21 ITC

► The threshold has to be assessed on an annual basis

► In case the threshold is exceeded, one must first set-off the

interest and dividends that have not been subject to the 4% levy


Withholding tax

► Extra solidarity levy of 4%

Threshold Basis

Interest 25% X

Dividends 25% X

Interest 21% (I)

Dividends 21% (D)

Tax-exempt interest from

savings accounts

X X

Liquidation boni X X

4% on I + D for

amount exceeding

threshold

Due if

sum >

20,020 €


Withholding tax

► Extra solidarity levy (cont‟d)

► Obligations imposed on withholding agent: i.e.

► The issuer in the case of Belgian sourced income with the exception of

securities held in the X/N system for which the BNB is the WHT agent

► First intermediary or subsequent financial institution in case of

application of art. 261, 2°, b) ITC, for foreign sourced income

► In the case of Belgian securities, this is bound to create problems as

► Issuer does not know identity of beneficiary

► How can beneficiary exercise option for the 4% at source

► How can the issuer/BNB satisfy its reporting obligations vis-à-vis the

NBB?

► Financial intermediary may need to withhold and report on behalf of the

WH agent or alternatively, issuer may want to apply 4% by default to avoid

reporting


Withholding tax


► Reporting to the National Bank

► No reporting requirement for interest/dividends on which the solidarity

levy was applied

► No reporting required of liquidation boni contemplated by art.171, 2°, f)

ITC and interest paid on government debt securities issued and

underwritten between 24 November 2011 and 2 December 2011 and

of interest and dividend income exempt pursuant to article 21 ITC

► Reporting is only required with a view to the application of the solidarity

levy and these income items count for the threshold computation

► All other interest and dividend income contemplated by article 17, §1,

1° and 2° as well as the identification data of the recipients of the

income must be reported (e.g. dividends paid by a residential REIT or

boni related to share buy-backs performed on a stock exchange

which, for the boni, seems impossible)


Withholding tax


► Reporting by the National Bank to the tax authorities

► Communication to the tax authorities at their request only (for example

when the taxpayer requests a refund of 4% levy)

► Automatic communication to the tax authorities if more than

EUR 20,020 reported to the National Bank

► Practical aspects to be laid down in a Royal Decree


Withholding tax – Example (1)

► Tax assessment relating to 2012

► The taxpayer received

► Interest on qualifying savings accounts (WHT exemption of EUR 1,830

for 2012)

► Other interest subject to 21% WHT

► The taxpayer did not request the application of the 4% levy at

source

Case Exempt WHT of 15% WHT of 21% 4% levy on

1. EUR 1,830 EUR 1,000 EUR 13,000 0

2. EUR 1,830 EUR 6,000 EUR 15,000 EUR 980

3. EUR 1,830 EUR 1,000 EUR 18,000 0

4. EUR 1,830 EUR 21,000 EUR 3,000 EUR 3,000


Withholding tax – Example (2)

Income Taxable basis WHT rate Increased

WHT?

Amount

Interest on

qualifying

savings account

EUR 8,170

(EUR 10,000 -

exemption of

first bracket of

currently

EUR 1,830)

15% N/A EUR 1,225.50

Other interest

and dividend

reduced WHT

EUR 20,000

interest and

EUR 30,000

dividends

21% 4% on amount

exceeding EUR

20,020

EUR 11,699.20

(currently

EUR 7,500)

Other dividends EUR 40,000 25% N/A EUR 10,000

Total EUR 98,170 EUR 22,924.70

(currently

EUR 18,725.50)


Withholding tax

► Ernst & Young point of view

► The rules on the solidarity levy constitute a hidden 25% WHT,

especially for investors aiming to preserve anonymity

► The rules on the solidarity levy establish a de facto

“vermogenskadaster / cadastre des patrimoines”

► Effective Date

► In case attributed or made payable as from 1 January 1 2012

► No relief for interest accrued prior to 2012

► e.g. Zero coupon bond issued in 2002 and maturing in 2012: entire

amount of the issue discount will be subject to the new rules


Withholding tax – Comparison with the Netherlands

Total investment capital 5.000.000,00 €

Dividend income 50,00%

Interest income 50,00%

WHT rate Belgium prior to 2012

Interest 15%

Dividends 25%

WHT rate Belgium as from 2012

Interest income up to EUR 20,000 21%

Interest income exceeding EUR 20,000 25%

Dividendq 25%

Annual revenue Annual dividend

income Annual interest income

Tax in Belgium prior

to 2012

Tax in Belgium as

from 2012 Tax in the Netherlands

3,00% EUR 75,000 EUR 75,000 EUR 30,000 EUR 36,700 EUR 59,746.33





8,00% EUR 200.000 EUR 200,000 EUR 80,000 EUR 99,200 EUR 59,746.33



Withholding tax


► Consider investment in following instruments in order to benefit

from a beneficial tax treatment and anonymity

► Branch 21/branch 23 life insurance products (longer than eight years

or payment >130%)

► Capitalization beveks/sicavs that are not EU passported or that do not

invest for more than 40% in debt instruments

► Savings accounts (15% on part exceeding EUR 1,830)

► Consider liquidating your company before the next budget round


Withholding tax – Personal income tax return

► Adopted (applicable to payments as from 1 January 2012)

► General reporting requirement for movable income in personal

income tax return, even after application of WHT (Art. 313 ITC)

► All movable income, including copyright income, miscellaneous

movable income, etc.

► Exception: interest/dividends for which solidarity levy of 4% was

applied

► BUT: application of solidarity levy on entire amount (not only on part

exceeding EUR 20,020) – reporting in tax return required for

reimbursement of excess tax (4% on first bracket of EUR 20,020 =

EUR 800.80)

► No application of additional municipality tax: art. 466 ITC will be

amended in a later law


Withholding tax – Reimbursement

► Adopted

► Applicable to payments as from 1 January 2011 (retroactively)

► Reduction of period of limitation for reimbursement request for

undue movable WHT and payroll tax from ten years to five years


Tax on conversion of bearer financial instruments


► Tax on the conversion of bearer financial instruments into

dematerialized financial instruments or registered financial

instruments

► Ratio: avoidance of mass dematerialization at the end of 2013

► Scope

► Bearer financial instruments from Belgian issuers

► Excluded: instruments with maturity date before 1 January 2014

► Taxable basis

► Listed instruments or instruments in Multilateral Trading Facilities: last

listed value before deposit

► Non-listed claims: nominal value of the claim

► Shares in bevek/sicav: last inventory value before deposition

► Other: accounting value on the day of the deposition



► Adopted (cont‟d)

► Tax rate

► Conversion in 2012: 1%

► Conversion in 2013: 2%

► No conversions after 2013

► Constitutionality questioned by State Council

► Change of position compared to 2005 Law on dematerialization

(possibility of conversion before end of 2013 without cost/tax)

► No reasonable justification for breach of expectations and different

treatment (avoidance of massive dematerialization at the end of 2013)




► Convert your financial instruments in 2012 to avoid additional 1%

tax

► Opt for dematerialization of bearer shares benefiting from the

reduced dividend WHT instead of conversion into registered

shares (in view of the continued application of the reduced

dividend WHT rate)


Combat against tax fraud

► Adopted: access for financial institutions to the national

register

► Helpful for financial institutions to meet their obligation to

communicate info to National Bank when banking secrecy is lifted

► Identity of the client

► Numbers of accounts and contracts

► Lifting of banking secrecy for Belgian tax authorities in case of

► Clues of tax evasion

► Intention of tax authorities to tax on the basis of “tekenen en indiciën

van gegoedheid/signes et indices d‟aisance”

► Lifting of banking secrecy on simple request in case of request for

information by foreign tax authorities


Combat against tax fraud

► Adopted

► Attribution of probative value to the electronic documents of the tax

administration

► Possibility for the tax administration to establish the existence of

infractions of the income tax code in “processen-verbaal/procès-

verbaux”


Combat against tax fraud Art. 344, §1 ITC

► General anti-abuse provision adopted in 1993

► Re-characterization of transaction(s), when aim of legal

characterization of the parties opted for is tax avoidance

► Taxpayer may prove legitimate needs of a financial or economic

nature for the chosen legal characterization

► Application in Supreme Court case law

► Cases relating to e.g. back-to-back transaction (subletting),

disproportional share buy-back, split sale of usufruct and bare

ownership, …

► Initially strict legal approach : re-characterization must have similar

legal consequences (impossible for one-step transactions and

difficult for step-by-step transactions unless (near-)simulation)

► New wind (more economic approach) in Supreme Court decision

of 10 June 2010 (cf. infra)


Combat against tax fraud Art. 344, §1 ITC / Supreme Court 10 June 2010

A B C

Management fee

BEF 500,000/month

Management fee

BEF 190,000/month

Management

services

► Situation

► Management contract A-B: B does day-to-day management of A

and other company (fee: BEF 500,000 per month per company)

► Management contract B-C: C does day-to-day management of A

and other company (fee: BEF 190,000 per month per company)

► B

► Loss-making company without equipment or assets

► Completely dependent on C for performance of management activities


Combat against tax fraud Art. 344, §1 ITC / Supreme Court 10 June 2010

A B C

Gift

BEF 310,000/month

Management fee

BEF 190,000/month

► Reclassification

► Reclassification of the different (artificial) stages of a transaction

into different classification possible provided same transaction

from an economic point of view (substitution of parties possible)

► Re-characterization must have similar non-tax legal consequences

► Result: re-charaterization into payment of management fee by A

directly to C and gift from A to B


Combat against tax fraud Art. 344, §1 ITC - modification

► In the pipeline: modification of the general anti-abuse

provision (Art. 344, §1 ITC)

► No text or plans available yet

► Different positions in doctrine after Supreme Court decision

► Position 1: no new provision needed

► More economic approach

► Purely theoretical and non-essential non-tax legal consequences are not to

be taken into account for the reclassification

► Position 2

► No change in approach

► Supreme Court decision deals with an extreme situation

► Almost simulation

► Interposition of B ≈ “naamlening / prête-nom”


Combat against tax fraud Art. 344§1 ITC - modification

► In the pipeline: modification of the general anti-abuse

provision (Art. 344, §1 ITC) (cont‟d)

► Possible approach : “wetsontduiking / fraude à la loi”

► Avoidance of the application of tax law

► Through legal and non-simulated legal acts

► Approximating to taxable acts

► While there is no other explanation for those legal acts than tax

avoidance

► Compare

► Art. 1, §10 VAT Code


Combat against tax fraud Abuse of management companies

► Tougher approach towards abuse of management

companies

► Not aimed at management companies in se

► Aimed at abuse of management companies

► Combat of turbo-usufruct transactions

► Combat against avoidance of social security regime for employees

and abuse of benefits

► Private expenses

► Cf. supra: company cars, BIK for heating and electricity

► Cfr. infra: tougher application of secret commission tax


Combat against tax fraud Secret commission tax

► 309% levy on unreported remunerations, incl. BIK

► Reporting obligation on specific forms: 309% secret commission

tax if not reported

► Past administrative tolerance: no application of 309%

► Classification as disallowed expense

► Booking on the beneficiary‟s current account (post factum)

► Internal administrative instruction (27 July 2011): strict application

of 309% unless

► BIK is reported on the specific forms and in the beneficiary‟s tax return

► BIK is included in the beneficiary‟s filed tax return even though it is not

reported on the specific form; or

► The beneficiary pays the invoiced amount of the benefit, or the value

of the benefit is added to the beneficiary‟s current account in the year

during which the benefit is granted



► 309% levy on unreported remunerations, incl. BIK (cont‟d)

► Addendum to internal administrative instruction of 27 July 2011

transitory period until 30 June 2012

► BIK taxed on lump sum basis + cell phone

► Tax authorities may decide not to apply the secret commission tax to BIK

discovered prior to 1 July 2012, which are not (sufficiently) reported,

provided taxation in the hands of the beneficiary is still possible

► Other BIK (not discovered prior to 1 July 2012 )

► The secret commission tax applies unless BIK are spontaneously reported

by the beneficiary prior to 1 July 2012



► 309% levy on unreported remunerations, incl. BIK (cont‟d)

► Addendum to internal administrative instruction of 27 July 2011:

strict application of 309% as from 1 July 2012

► No application of secret commission tax on benefits which are

recorded on the current account of the beneficiary in the year during

which they have been granted

► No longer accepted: not submitting the appropriate forms and waiting

until the tax audit to record the amount of the current account

► Elements to take into account by the tax authorities when assessing

whether or not to apply the secret commission tax

► Good faith of the taxpayer who has simply forgotten or has mistakenly not

reported the benefit

► Exceptional nature of the failure to report and the materiality of the error

► New administrative tolerance: no 309% when no reporting due to

reasonable (but wrong) classification as social/cultural advantage by

grantor


Combat against tax and social fraud

► Modifications still in the pipeline

► Harmonization of investigative competencies

► Strengthening of anti-money laundering provisions

► Reporting requirement for foreign accounts (to the National Bank)

► Increased combat of the abuse of the self-employed status, use of

fake companies, abuse of companies (main target on management

companies)

► Increase of maximum penal fines for tax fraud from EUR 125,000

to EUR 3 mio

► And many other measures …


Miscellaneous

► Adopted

► VAT

► Increase of tax rate on pay TV from 12% to 21%

► Application of VAT to notaries and bailiffs

► Increase of excises on tobacco

► Bank tax

► Tax on the energy sector

► Increase of the stock exchange tax (tax rates and maximum

amounts)


R&D incentives have not been modified

► R&D incentives: confirmation of continuation (and, insofar

possible, extension) of tax measures

► Wage withholding tax exemption

► Investment deduction for R&D

► Patent income deduction

► Exemption of regional grants

► Belgium remains attractive R&D/IP location


Conclusion

► What‟s next?

► Next budget round in March (need for additional income / savings)

► Draft legislation for remaining items to be submitted to Parliament

► NID carry-forward

► General anti-abuse measure (Art. 344, §1 ITC),

► Thin cap

► Hopefully, clarification of practical application of solidarity levy of

4% on interest/dividends (especially regarding application at

source)


Herwig Joosten

Tel.: +32 2 774 91 00 Email: [email protected]

Ernst & Young

Assurance | Tax | Transactions | Advisory 2012 Ernst & Young Transaction Advisory Services All rights reserved.

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