Belgium - Draft bill introduces yet another bank levy
Following recent budgetary discussions, an additional annual bank levy (hereafter “new annual bank levy” or “the new levy”) has been proposed in Belgium. Those familiar with Belgian tax law, will notice that this new levy is almost a “copy-paste” of the annual bank levy which already exists since 1993 and will continue to exist alongside the new (currently proposed) bank levy, the contribution to the deposit protection fund and the financial stability contribution. Such new bank levy would thus bring the number of Belgian levies specifically applicable to banks up to four. The distinct levies are briefly described in the annexed overview.
At the same time a new bank levy is taking shape, the rates applicable to the (already existing) yearly contribution to the deposit protection fund are set to be increased (cfr. overview in annex, please click below on the button "Overview of levies applicable to banks in Belgium").
The proposed bank levy
Pursuant to a draft bill of 15 May 2012, the new annual bank levy will be due by Belgian banks and foreign banks (both EEA and non-EEA) with a branch in Belgium.
The new levy uses regulated savings deposits as the basis for calculating the tax due. In particular, the draft bill refers to the total amount of deposits governed by article 21, 5° of the Belgian Income Tax Code (hereafter “BITC”), which exempts interest income of EUR 1,830 (per annum) on regulated savings deposits of Belgian private individuals. The deposits must be held by a bank governed by the Law of 22 March 1993 (on credit institutions) and must meet certain well-defined requirements.
The total amount of regulated savings deposits on 1 January of the assessment year is first reduced by the interest payments (on the given deposits) relating to the year preceding the assessment year. Secondly, this amount is multiplied by a fraction of the total amount of payments potentially qualifying for exemption under article 21, 5° BITC (numerator) and the total amount of interest payments on such regulated savings deposits in the year preceding the assessment year (denominator).
A tax rate of 5 basis points (0,05 %) is applicable. However, this rate is to be adjusted on the basis of a ratio which measures the extent to which the bank effectively grants support to the European economy. To that end, one needs to determine the bank’s ratio of “European loans not granted to financial institutions” in relation to regulated savings deposits.
Based on the ratio calculated as such, a weighting coefficient is applied: the more the bank is considered as supporting the European economy by granting “real” loan finance, the lower the applicable weighting coefficient.
|0 – 0.25||240 %|
|0.25 – 0.5||160 %|
|0.5 – 1||85 %|
The tax is due on 1 January of each year. The tax return must be filed (and the tax must be paid) no later than 1 July of the assessment year. A fine of EUR 250 per week is due if the tax return is not filed in time, while interest for late payment is due at a rate of 7 %. On 1 July 2012, the tax should become payable for the first time. A Royal Decree governing the formal implementation of the tax (e.g. the model of the tax return) will be issued at a later date.
Similarly to the already existing bank levy, the draft bill states that banks are not allowed to shift the costs of the new levy to deposit holders.
On 1 January of the assessment year, a bank holds a total amount of deposits of EUR 2,000 mio, while the amount of the regulated savings deposits is EUR 1,600 mio. The amount of interest paid on the latter deposits in the previous year is EUR 10 mio, while the amount of exempt interest paid on those deposits is EUR 8 mio. The ratio regarding “loans supporting the European economy” is 0.30.
As noted above, the starting point of the calculation of the new levy is the total amount of regulated savings deposits (EUR 1,600 mio). From this amount, the interest paid on those deposits in the preceding year (i.e. EUR 10 mio) is deducted, resulting in EUR 1,590 mio. In order to calculate the taxable basis, that amount is multiplied by a ratio of 8/10 (i.e. the ratio of 8 mio, being the total amount of exempt interest income, and 10 mio, being the total amount of interest income paid on regulated savings deposits in the year preceding the assessment year). Consequently, the taxable basis in this example is EUR 1,272 mio.
Finally, since the ratio regarding “loans supporting the European economy” is 0,30, the applicable weighting coefficient is 160%. As a result, the tax due is calculated as follows: EUR 1,272 mio x 160 % x 0,05 %. The levy due will thus amount to EUR 1,017,600.
Food for thought
If the draft bill would be accepted by the Belgian legislator, the new levy could have a significant impact on banks operating in Belgium, especially insofar as they offer savings accounts without having a loan product offering.
Even before being effectively adopted, the draft bill has attracted severe criticism. Consequently, it is possible that the new levy will be modified before it comes into effect.
Having said that, we would also like to recall that the newly proposed bank levy is not the only bank levy that is currently subject to discussion and put to the test by financial institutions.
Overview of levies applicable to banks in Belgium : click here
We have an experienced and dedicated FSO Tax team that is both well positioned and experienced to assist you with any question you may have on bank levies or any other financial services tax matter.