Global Tax Alert | 3 July 2013

Belgium agrees on 2013-2014 budget measures

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On 30 June 2013, the Belgium Government reached an agreement on new budgetary measures for 2013 and 2014. As in recent budgetary exercises, this one also includes a range of new taxes and tax increases.

More details have become available on many of the agreed upon measures and they are outlined below. However, the information is based on preliminary proposals and it is possible that certain elements will be changed in the final bill.

The additional measures were required to keep the original 2013 budget on track, even after the recent Program Law (published on 1 July) and the law of 17 June 2013 containing miscellaneous tax provisions (published in the Belgian Official Gazette of
28 June 2013).1

Fairness tax

The government introduces an additional tax for non-SME’s (small and medium sized companies), as defined in article 15 of the Belgian Company code, on the occasion of a dividend distribution. The taxable base is determined by the difference between the amount of distributed dividends and the final taxable result that has effectively been subject to tax in the course of the same taxable period. In a next step, the additional taxable base is reduced by the amount of taxed reserves that have been retained prior to (calendar) year 2013 and are included in the dividend distribution. Finally, the resulting amount is reduced by the following factor:

  • the numerator of which is the final taxable result that has effectively been subject to tax increased by the applied notional interest deduction and loss carried-forwards;
  • the denominator of which is equal to the taxable result following the first operation of the calculation of the normal corporate income tax liability, which is more or less equivalent to the operational income.

As a result of this factor, the redistribution of profits that have benefited from the dividend received deduction and exemption regimes for foreign branch and real estate income will decrease the proportionality factor and, thus, reduce the taxable base for the additional fairness tax assessment. On the other hand, these types of exempt income are only partially excluded from the additional ”fairness” tax basis and are, arguably, no longer fully exempt from Belgium income taxation.

The fairness tax of 5.15% applies to resident companies and an equivalent form of taxation is introduced for corporate taxpayers subject to the non-resident income tax. SMEs will not be subject to the tax.

The minimum tax will not be deductible and will have to be taken into account in the calculation of the tax prepayments under the penalty of tax increases for insufficient prepayments.

The ”fairness” tax measure will apply as from tax year 2014. Changes made to the accounting year of a company as from 28 June 2013 can be disregarded by the tax authorities for the purposes of this measure.

Objections have already been raised against this additional ”fairness tax” from an EU law perspective. In situations where the Parent-Subsidiary Directive applies, the new tax may be prohibited for two distinct reasons. First, it is a type of ”source taxation” because the tax is only due upon a dividend redistribution and the amount of the tax is commensurate with the amount of the dividend distribution. Second, as the proportionality factor only partially excludes dividends received from the its calculation basis, the additional fairness tax also leads to a partial taxation of dividends received while the Parent-Subsidiary Directive requires that these are exempt.

Dividends received deduction

In order to apply the dividend received deduction (Belgian participation exemption), the Belgian shareholder had to own at least 10% of the share capital in the distributing entity or shares in the distributing entity with a total acquisition value of at least €2.5 million. The latter may be abolished and as a result a 10% shareholding threshold will be required to apply the Belgian dividend received deduction (aside from other conditions).

Other measures:

  • As from 1 January 2014, SME and individuals/employers will be granted a payroll tax exemption for a total worth of €50 million. This measure is portrayed as a counterpart measure for the fairness tax aiming to stimulate SMEs.
  • Investment companies will no longer benefit from a withholding tax exemption for Belgian-source dividends received and will not be entitled to a credit or refund of this withholding tax. However, a withholding tax exemption will be introduced for investment companies that establish a compartment exclusively for pension funds. The withholding tax exemption will be restricted to that sector.
  • Moreover, as from 1 July 2013, capital gains on investment funds not having an EU passport, investing more than 25% of their funds in debt instruments will no longer be exempt in personal income tax but will become subject to the general 25% withholding tax.
  • The tax on the savings accounts of banks (bank tax/abonnementstaks/taxe d’abonnement) will increase in order to generate an additional €40 million of revenue.
  • The tax rate on dividends distributed by association of communes (intercommunales) will increase from 15% to at least 25%.
  • Services performed by lawyers become subject to VAT at the normal rate of 21% as from 2014. On the other hand, lawyers will become entitled to the deduction of input VAT.
  • The maximum amount for the non-recurring result-tied bonuses will be aligned with social security law and increased to €2,695.
  • A notification procedure and more transparency relating to off-shore operations will be introduced.

Conclusion

The proposed changes may require a review of the tax position of many companies in Belgium in order to assess their actual impact. Future Alerts will cover legislative developments.

Endnote

1 See Ernst & Young Global Tax Alert, Belgium issues final Budget 2013 bill containing miscellaneous tax provisions, dated 28 June 2013.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Consultants SCCRL/BCVBA, Brussels
  • Herwig Joosten
    +32 2 774 9349
    herwig.joosten@be.ey.com
  • Werner Huygen
    +32 2 774 9404
    werner.huygen@be.ey.com
  • Steven Claes
    +32 2 774 9420
    steven.claes@be.ey.com
  • Peter Moreau
    +32 2 774 9187
    peter.moreau@be.ey.com
Ernst & Young LLP, Belgium-Netherlands Tax Desk, New York
  • Arne Smeets, Belgium
    +1 212 773 2093
    arne.smeets@ey.com
  • Bart Desmet, Belgium
    +1 212 773 3068
    bart.desmet@ey.com
  • Dirk Stalenhoef, New York
    +1 212 773 3390
    dirk.stalenhoef@ey.com
  • Jan van den Enden, New York
    +1 212 773 4417
    jan.vandenenden@ey.com
  • Sebastiaan Kuijper, New York
    +1 212 773 5187
    sebastiaan.kuijper@ey.com
  • Mark de Jager, New York
    +1 212 773 5331
    mark.dejager@ey.com
  • Jeske Ladan, New York
    +1 212 773 4909
    jeske.ladan@ey.com
  • Maaike Muit, New York
    +1 212 773 7026
    maaike.muit@ey.com
  • Yorick Vreenegoor, New York
    +1 212 773 7025
    yorick.vreenegoor@ey.com
  • Frank Schoon, Chicago
    +1 312 879 5508
    frank.schoon@ey.com
  • Frank van Hulsen, San Jose
    +1 408 947 6503
    frank.vanhulsen@ey.com
  • Michiel van der Maat, San Jose
    +1 408 947 6678
    michiel.vandermaat@ey.com

EYG no. CM3603