Agreement on the budget 2012 – 2014: overview of the latest amendments

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This is an update of our alert of November 28, 2011. Click here to see this previous alert.

Last Friday, the political parties reached an agreement on the national budget. Some minor modifications have been made to some of the tax measures proposed earlier.

This overview only deals with amended measures and measures for which additional information has become available since the Tax Alert of 28 November 2011. For an overview of all measures, we refer to that Tax Alert.

Personal income taxation

In the relationship between employers and employees, some important changes vis-à-vis the first plans were introduced.

  • Stock options: currently, the benefit in kind is equal to 15% of the value of the underlying shares (subject to decrease under circumstances) at the moment of the attribution. The benefit in kind will increase to 18% for transactions as of 1 January 2012.
  • The benefit in kind for company cars will be determined based on the list price of the car and on its CO2 emission level.
    • When the CO2 emission level is 95 gr./km (diesel) or 105 gr./km (gasoline), the list price of the car has to be multiplied with 5.5%. This multiplicator is increased with 0.1% (with a maximum of 18%) for every gram over the 95 or 105 gr/km and reduced with 0.1% (with a minimum of 4%) for every gram under those thresholds.
    • At the end of last week, it was agreed that the burden from the increased car taxation should be divided between employers and employees. Therefore, the amount resulting from the above formula has to be multiplied with 6/7 in order to determine the benefit in kind.
    • The benefit cannot be lower than 1.200 EUR.
  • Internal pension provisions for independent directors will have to be transitioned to an external pension scheme within a period of 3 years. New pension schemes are subject to a 4.4 % insurance tax. Premium payments in the framework of such transitions will be subject to a 1.75% insurance tax.
  • The tax in case of a premature payout of complementary pensions at ages 60 and 61 will be higher (at rates of 20% and 18% respectively).

Moreover, a range of deductible expenses (such as gifts and housing related expenses) will be converted into tax reductions. The current tax reductions that are subject to the special average rate (ranging from 30% to 40%) will become subject to a fixed rate of 30%. Tax incentives for a large number of environmentally friendly investments by individuals (solar power, double glazing, environmentally friendly cars, …) are abolished.

Corporate Tax

In order to divide the burden resulting from the increased company car taxation between employers and employees, the government parties agreed that the companies granting the company car will have to increase the amount of their disallowed expenses with an amount equal to 17% of the benefit in kind, as determined in accordance with the above formula. The current deductibility limitation of car expenses (deduction ranging from 90% to 50% according to the CO2-emmission of the car) remains unchanged.

Also, the treatment of complementary pension contributions will be made stricter. In addition to the limitation in the current 80%-rule, the contributions will only be deductible insofar the pension of the taxpayer will not exceed the highest government pension.

The main proposed corporate tax measures are not modified:

  1. The notional interest deduction (NID) rate will be set at 3%. Future excess NID will no longer be deductible. Existing excess NID carried forward will remain deductible within certain limits. The application of the deduction of existing NID carry-forward becomes the last operation, i.e. after the deduction of the tax loss carry-forward.
  2. Capital gains on shares become taxable at a rate of 25% if they are realized within 1 year as from the acquisition of the shares.

Fight against tax and social security fraud

An important part of the budgetary efforts focuses on an increased fight against tax and social security fraud.

We now know what the measures will be, but we don’t have a view on the time schedule regarding their introduction.

  • Introduction of a ‘general’ thin cap rule of 5 to 1 for intra-group loans;
  • Substitution of the gen eral anti-abuse provision by a more economical anti-abuse measure;
  • Fight against turbo usufruct constructions;
  • Uniform application of tax and social security regulations;
  • Better recovery of taxes and social contributions;
  • Introduction of the "most efficient investigation competencies" in all the departments;
  • Increased fight against tax and social security fraud;

Research and development

In order to secure the attractiveness of Belgium as an R&D location, the government confirms the continuation and, insofar possible from a budgetary perspective, extension of the tax incentives for research and development.

This pertains to:

  • The patent income deduction;
  • The deduction of investments;
  • The exemption of regional subsidies;
  • The payroll tax exemption;
  • The regime for Young Innovative Companies;
  • The deduction of gifts;

From plans to legislation

Now, the political agreement must be put in legislative texts. In order to meet the planned date for the entry into application, for some measures (e.g. withholding tax changes), legislation must be in place by 1 January 2012. This leaves taxpayers and other parties very little time to take the necessary precautions.