Finance Minister questioned on reporting obligation for payments to tax havens
The Finance Minister was questioned on the impact of the recent OECD decisions in the peer review process on the compliance of some OECD member states with the exchange of information standard.
The Finance Minister confirms that these decisions in principle mean that payments to beneficiaries in some additional countries must be reported for taxable periods starting as from 1 December 2013 (Parliamentary Question nr. 22255, House, CRIV 53 COM 936, p. 13).
In 2009, the Belgian legislator introduced a reporting requirement for companies for payments (directly or indirectly) made to beneficiaries located in so-called “tax havens” (applicable to payments as from 1 January 2010).
This measure applies both to companies subject to Belgian corporate income tax and to companies subject to Belgian non-residents income tax. It only applies when the total amount of qualifying payments amount to at least EUR 100,000 during the taxable period.
For the purpose of this measure, tax havens are considered to include:
- Zero- and low-tax jurisdictions, as determined by royal decree (jurisdictions with a nominal corporate tax rate below 10%);
- Countries that are considered by the OECD as jurisdictions that do not sufficiently apply its standard for the exchange of information.
It should be noted, however, that the obligation on this basis only applies if the jurisdiction is considered non-compliant during the entire taxable period in which the payment took place.
The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (hereafter ‘the Global Forum’) engaged in a peer review process in which it assesses the adequacy of its members’ legal and regulatory framework for exchange of information in tax matters (Phase 1 review) as well as the application of this framework (Phase 2 review).
At the meeting of 21 and 22 November 2013, the Global Forum issued its phase 2 review decisions on a number of countries. Four countries are considered as non-compliant countries, namely Cyprus, Luxembourg, the Seychelles and the British Virgin Islands (please click here for the overview of the assessments made by the Global Forum). The first three of these countries were not yet covered by the current royal decree listing the tax havens based on the first criterion, contrary to the British Virgin Islands, which was included as from 1 January 2010.
Impact on reporting requirement
Following the decision of the Global Forum, qualifying payments to Cyprus, Luxembourg and the Seychelles are in principle also to be reported as from taxable periods starting on or after 1 December 2013 (for companies of which the accounts follow the calendar year, this means that the reporting requirement applies to payments to those three countries as from 1 January 2014). Only if the OECD would take a jurisdiction off of the list of non-compliant countries during a taxable period, this obligation would not apply as from that taxable period.
For completeness’ sake, it is noted that Austria and Turkey were considered as only partially compliant. The Finance Minister confirms that the reporting requirement does not apply for these countries.
Qualifying payments to beneficiaries located in Cyprus, Luxembourg and the Seychelles are now also to be reported by corporate taxpayers.
Companies are advised to monitor their payments made to beneficiaries in these jurisdictions and to keep in mind the reporting requirement for these additional countries when filing the tax return. Additionally, stricter evidentiary rules apply to consider such payments as tax deductible. The taxpayer needs to establish that the payments have been made for real and actual transactions with entities that are not ‘artificial constructions’. As this is the first time that EU member states are subject to the reporting requirement and the stricter evidentiary rules, the question arises whether these Belgian measures are in line with the economic freedoms enshrined in the Treaty on the Functioning of the European Union.
If the status of a country is changed to ‘compliant’ in the course of the taxable period during which the qualifying payments are made, payments to this country would no longer be covered by the reporting requirement.
Note that as from 2015 Luxembourg will automatically exchange information in connection with the current EU savings Directive, applying the same system as the other European Union member states.
Also note that Luxembourg has indicated that it will review the recommendations submitted and that it remains committed to moving forward with transparency and the exchange of information for tax purposes.
EY Tax Consultants will follow-up on developments on this matter and keep you informed. 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.