Belgian tax authorities issue guidance on catch-all provision
The Belgian tax authorities issued their guidance on the application of the catch-all provision in a notification which was published in the Belgian Official Gazette of 23 July 2014.
This guidance was much anticipated as differences between the text of the provision, which was introduced by the Law of 13 December 2012 containing tax and financial provisions, and the related parliamentary documents caused several interpretation issues.
Please click for the full text of the guidance:
The catch-all provision imposes tax on certain income of non-residents (not listed in the first and second paragraph of article 228 ITC 1992) when:
- There is an expense incurred by a Belgian tax resident or a Belgian establishment;
- The expense relates to income that is taxable in accordance with the Belgian Income Tax Code; and
- The income is paid to a non-resident from a country
- with which Belgium does not have a double tax treaty and the beneficiary does not prove that the income is or will effectively be taxed in his state of residence, or
- with which Belgium has a double tax treaty that grants taxing power on that income to Belgium.
Effective as from 1 March 2013, this income is subject to a withholding tax of 33% to be levied by the debtor of the income on the gross income after a lump sum deduction of 50% (except when the applicable double tax treaty imposes a lower tax). In principle, the withholding tax constitutes a final tax but the taxpayer may opt to have the income globalized (by filing a tax return eventually).
On several points, the text of the law seemed to leave more room to tax than indicated in the parliamentary documents. When interrogated on the matter, the Finance Minister stated that the tax authorities would look into additional guidance and the possibility of introducing a de minimis rule (please click here for the Tax Alert on this subject).
The notification of the tax authorities answers various practical questions regarding the application of the withholding tax.
The most important clarifications relate to:
- the payments which are subject to the tax (scope of application);
- the introduction of a de minimis rule;
- the proof of effective taxation of the income in the state of residence of the beneficiary (non-treaty countries only).
Scope of application: payments for services only
The text of the parliamentary documents and the examples given therein indicate that the provision is meant to allow taxation of Belgian-source payments for services rendered by non-residents only. The text of the legal provision, on the other hand, seems not to limit the scope to payments for services, but to extend to all payments not listed in article 228, §§ 1 and 2 ITC 1992.
The notification of the tax authorities now confirms only payments for services are targeted.
De minimis rule
The notification introduces a threshold for the application of the withholding tax: it is not due on the first bracket of EUR 38,000 of qualifying payments per beneficiary and per year, but only on the part exceeding this amount. Withholding tax that already has been paid without taking into account this threshold can be claimed back via an administrative appeal.
The tax authorities give the following example:
Payments to the same beneficiary in 2014:
- EUR 15,000 on 27 May 2014;
- EUR 10,000 on 26 June 2014;
- EUR 17,000 on 24 October 2014.
As a result of the de minimis rule, no withholding tax would be due on the first two payments in their entirety and on EUR 13,000 out of the payment of 24 October 2014 (combined for a total amount of EUR 38,000).
The 33% withholding tax would apply to the remaining EUR 4,000 of the payment of 24 October 2014 reduced with a lump sum deduction of 50%. Consequently, the withholding tax would amount to EUR 660.
The tax authorities remind to check whether this amount does not exceed the maximum tax that can be levied according to the applicable tax treaty (calculated on the basis of the total amount of EUR 17,000).
It should be noted that the de minimis rule does not apply when the beneficiary chooses to globalize the income and report it in a tax return for non-residents. In that case, the entire income will be subject to taxation but the withholding tax paid can be credited.
Effective taxation in residence state of the beneficiary (non-treaty countries only)
Qualifying payments to non-residents from non-treaty countries are subject to the withholding tax when the beneficiary does not prove that the income is or will effectively be taxed in his state of residence.
Income is considered to be “effectively taxed” when it is subject to taxation without being exempt. In other words, the income must have been included in the taxable base. The fact that this base would then be reduced by the application of deductions, however, does not pose a problem.
The notification provides for a model form (in Dutch and in French only) in which the tax authorities of the residence state of the beneficiary can certify that this requirement is or will be met. The beneficiary can also choose to submit another form as long as it meets all the conditions. No form needs to be submitted when the amount of the payments do not exceed the de minimis threshold.
In case of payments made in the same year for services in the framework of a long-term service contract, the same form can be used for all payments relating to that contract for the entire calendar year.
When the form is not submitted in time, withholding tax will be levied. The beneficiary can file an administrative appeal against the withholding tax if he is able to provide proof of effective taxation at a later time (e.g. by submitting the tax assessment form of his residence state).
EY Tax Consultants welcomes the clarifications and confirmation by the tax authorities that the scope of the new provision is limited to “the payment for services” (and excludes payments for supplies of goods).
Impacted taxpayers are advised to:
- claim back withholding tax that has been unduly levied as a result of the non-application of the de minimis rule;
- monitor their qualifying payments so as to assess when withholding tax becomes due, given the application of the de minimis rule;
- have the tax authorities of their residence state certify that the income is or will be effectively taxed over there, using the model form or an alternative valid form (non-treaty countries only).
Do not hesitate to get in touch with the contact persons listed here or with your regular contact at EY Tax Consultants for more information or assistance in this matter.