Global Tax Alert | 8 January 2014

Belgium enacts new tax laws

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On 31 December 2013, some new tax laws were published in the Belgian Official Gazette. This Alert summarizes the key provisions.

Notional interest deduction

The Belgian legislator has acted to align the rules relating to the notional interest deduction (NID) with the judgment of the Court of Justice of the European Union (CJEU) of 4 July 2013 in the Argenta Spaarbank case.1

The NID is a tax deduction for corporate taxpayers based on their adjusted net equity. Typical adjustments were, among others, the net assets used by a foreign permanent establishment (PE) and the net assets invested in real estate, located in countries with which Belgium has concluded a double tax treaty (DTT). According to the CJEU, the exclusion from the NID base of the net assets of the PE located in another member state of the European Union constitutes a restriction of the freedom of establishment as Belgian companies are dissuaded from establishing branches in other member states.

The Belgian legislator abolished both exclusions, which generally increases the basis of the risk capital on which the rate is applied for the calculation of the NID.

However, in order to limit the consequences from a budgetary point of view, the NID will be subject to new limitations depending on the country in which the foreign PE or the real estate is situated:

  • PEs or real estate situated in a member state of the European Economic Area of which the income is exempted in Belgium based on a DTT: the NID to be deducted in Belgium will be reduced with the NID portion relating to the net assets attributed to the PE or real estate to the extent that it is lower or equal to the positive result derived from these assets. In case the NID portion related to these assets exceeds the result derived from them, the excess can be deducted from the result in Belgium;
  • PEs or real estate situated in a state outside the European Economic Area of which the income is exempted based on a DTT: the calculated NID to be deducted in Belgium will be reduced with the NID portion relating to the net assets attributed to the PE or real estate.

These adjustments to the NID legislation enter into force as of tax year 2014 (accounting years ending between and including 31 December 2013 and 30 December 2014).

Fairness Tax

It has been explicitly confirmed that withholding tax and advance tax prepayments are creditable and refundable vis-à-vis the fairness tax applicable as of tax year 2014 (accounting years ending between and including 31 December 2013 and 30 December 2014).

One-time investment deduction for small companies

Under certain conditions, the legislator reintroduced for 2014 and 2015 the one-time investment deduction for small companies, as defined by the Belgian Company Code, setting the rate at 4%. The application may be further extended by Royal Decree.

The measure only applies to ordinary investments. Investments that are subject to a special investment deduction regime (such as energy saving investments), are not eligible for the measure. The aforementioned investment deduction cannot be applied simultaneously with current year NID (the use of stock NID is allowed).

This measure enters into force as of 1 January 2014.

Implications

The laws in general do not contain major corporate tax reforms for multinationals.

As far as the modification of the NID is concerned, it should be noted that the State Council questions the compatibility of the modified regime with the EU freedom of establishment. Further developments will be summarized in future Alerts.

Endnote

1. See EY Global Tax Alert, EU Court holds Belgian notional interest deduction incompatible with EU freedom of establishment, dated 8 July 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
  • Kurt Van Der Voorde
    +32 2 774 9281
    kurt.van.der.voorde@be.ey.com
  • Peter Moreau
    +32 2 774 9187
    peter.moreau@be.ey.com
  • Arne Smeets
    +32 2 774 6363
    arne.smeets@be.ey.com
Ernst & Young LLP, Belgium-Netherlands Tax Desk, Global Tax Desk Network – New York
  • Bart Desmet
    +1 212 773 3068
    bart.desmet@ey.com
  • Sophie Vereecke
    +1 212 773 5893
    sophie.vereecke@ey.com

EYG no. CM4088