Direct tax – Year-end planning per 31 December 2022

Around this time of the year, companies subject to corporate income tax and non-resident corporate income tax can already estimate whether or not there will be a positive taxable basis. This is also the perfect time to get a better idea of the amount of taxes that you will have to pay next year. The question is whether it is still possible to anticipate this taxable basis before the end of the year.

A proper valuation and assessment of the costs and revenues can prevent the financial auditor from making important corrections to the taxable basis after year-end.

Finally, attention needs to be drawn to the strict attitude of the tax administration with regard to tax audits. During the past year, tax audits took place regarding the correct and timely submission of all compliance obligations and more targeted checks have been carried out using data mining.

The summary below has the purpose to inform you about:

• Opportunities for your company;
• Compliance obligations that you should take into account;
• Recent & future legislative changes.

For further information, we refer to our EY website (https://www.ey.com/en_be). If you have any further questions, please do not hesitate to contact your EY contact for more information.

When referring to a certain tax year, it is assumed that the corresponding financial year starts on January 1^st (e.g. for the tax year 2023 reference is made to the financial year starting on January 1^st, 2022).
 

Green mobility

As you may have heard by now, the legislator wants to accelerate the green transformation of the Belgian company car fleets. A distinction has to be made between company cars with and without carbon emissions. 

Concerning company cars with carbon emissions (incl. plug-in hybrid cars), a distinction is made depending on the date the company car is purchased, leased, or rented:

• A purchase, lease, or rental before 1 July 2023: the current deduction percentages remain valid with a minimum deduction of 50% and maximum deduction of 100% according to the current formula. 40% remains applicable if the CO² emission is unknown or if the CO² emission exceeds 200 gr/km.
• A purchase, lease, or rental between 1 July 2023 and 31 December 2025: the current formula remains valid, but without minimum deduction threshold as of tax year 2026. As of the financial year 2025, the maximum deduction threshold will decrease annually ("extinction scheme") with 25% from 75% (tax year 2026) to 0% (tax year 2029). In case the CO² emission is unknown, the car costs are not tax deductible.
• A purchase, lease, or rental as of 1 January 2026: these costs will no longer be tax deductible.

As of 1 January 2023, an additional tax deduction limitation will come into effect, limiting the upper limit of the tax deductibility of diesel and petrol costs to 50% (only applicable to hybrid cars that are purchased, leased, or rented on or after 1 January 2023).

The carbon emission-free company cars (electric or hydrogen-powered) remain 100% tax deductible. However, the deductibility of carbon emission-free company cars purchased, leased, or rented as of 1 January 2027 onwards will decrease gradually (depending on the period of purchase, lease, or rental). As of 2031, costs for such company cars will only be tax deductible at 67,5%.

In order to be able to evaluate the impact of this legislation, a reporting obligation has been provided by the legislator whereby the taxpayer will have to submit, on an annual basis, all data required for evaluating such impact. This reporting obligation is applicable as of tax year 2022 (linked to a taxable period that starts at the earliest on 1 January 2021).

The practical details will be determined by means of a Royal Decree. To date, this has not been provided.

In order to encourage companies to invest in charging infrastructure, the legislator has decided to allow an increased cost deduction for depreciation of investments in certain qualifying public accessible charging stations. The deduction is determined as follows:

• 200% for investments made in the period between 1 September 2021 and 31 March 2023
• 150% for investments made in the period between 1 April 2023 and  31 August 2024.
• 100% for investments made in the period between 1 September 2024 and 31 December 2029;
• 75% for investments made as of 1 January 2030 onwards.

The increased cost deduction cannot be combined with the investment deduction.

Finally, companies can also benefit from a one-off investment deduction for investments related to carbon emission free trucks. For a brief explanation, we refer to the section ‘Investment deduction’. 
 

Prepayments

We would like to remind you that the deadline for submitting requests for reimbursement or transfer of prepayments must reach the ’Inningscentrum – Dienst Voorafbetalingen' by 31 March 2023 at the latest. Such request can be done through the MyMinfin platform.
 

Transfer pricing documentation

If your company is part of a multinational group, you may be subject to the mandatory transfer pricing documentation. If you have to submit a master file, it must be submitted within 12 months after the last day of the group's reporting period (e.g. 31 December 2022).

The country-by-country notification (CBC NOT) must be submitted on the last day of the group's reporting period at the latest. The CBC NOT form does not have to be submitted annually, only in case of changes compared to prior filing, and upon the condition that the previous CBC NOT has been filed timely and correctly.
 

Premiums and grants

We recommend checking whether any energy-saving investments made during the financial year (including insulation, relighting, heat pumps, etc.) can qualify for premiums granted by the network operator.

For most premiums and grants provided with by the government, a request should be filed by the company before the start of the project. It is therefore recommended to start analysing possible premiums and grants in due time for any projects that the company will be undertaking in the course of next year (mainly in the field of research and development and (sustainable) investments).

In many cases, received premiums and grants are tax exempted. It is recommended to verify whether all the tax conditions are complied with in order to avoid an incorrect treatment of the income.
 

Investment deduction

We recommend to review the investments made and verify whether they are eligible for a one-off or spread investment deduction (e.g. energy-saving investments, investments in patents, investments in R&D, investments in smoke extraction or ventilation systems in catering establishments, investments in reusable packaging and investments in security (only for SME companies)).

For SME companies, the one-off (ordinary) investment deduction is 25% for fixed assets, acquired between 12 March 2020 and 31 December 2022. As of 1 January 2023, the rate amounts to 8%.

The unused ordinary one-off investment deduction with respect to assets acquired or established between 1 January 2019 and 31 December 2021 may be temporarily carried forward to the two subsequent taxable periods (previously the carry forward was limited to one year).

With respect to the ongoing electrification of company vehicles, companies can claim an increased one-off investment deduction during the calendar years 2022 to 2026. It concerns carbon emission free trucks, the installation of refueling infrastructure for blue, green or turquoise hydrogen and electric charging infrastructure for carbon emission free trucks. For investments made in 2022 (and 2023), the investment deduction rate is 35% (gradually reduced in the following years). This measure cannot be combined with the increased depreciation of public accessible charging stations. If this increased investment deduction for emission-free trucks and their charging infrastructure cannot be used due to insufficient taxable basis, the unused investment deduction can be carried forward indefinitely.

Note that, with regard to the deduction for energy saving investments, the relevant attestation must be requested online from the relevant Region within 3 months following the end of the financial year (for financial years as of 31 December 2022, at the latest by 31 March 2023).
 

Spread taxation of realized capital gains on (in)tangible fixed assets

The taxation of realized capital gains on (in)tangible fixed assets can be spread over time. The capital gain needs to be recorded on a liability account and the sales value (or compensation in the case of forced capital gain) should be reinvested within the statutory periods.

For previously tax exempted capital gains, it is recommended to consider possible reinvestments in order to timely comply with this condition within the statutory period (possibly before the end of 2022). A merger may in certain cases be taken into account as a valid reinvestment.

We would like to draw your attention to the fact that no timely reinvestments will result in the immediate taxation of the entire capital gain at the tax rate applicable at the time of the realization.

Belgian tax shelter

We would like to remind you of the existence of the Belgian tax shelter regime, which could be an opportunity for your company. This mechanism allows Belgian or foreign companies established in Belgium to benefit – under certain conditions -from relevant tax advantages, upon investment in audiovisual works or performing arts. In principle, this benefit amounts to 203% of the fiscal value of a so-called tax shelter certificate. We recommend reaching out to your local EY contact in case you would like further information on this rather complex calculation.

The tax shelter certificate can be obtained by reporting the framework agreement to the Federal Public Service of Finance within one month after its signature.

As the date of the framework agreement determines the date of the (initially provisional) exemption, such an investment can be done until the last day of the financial year (i.e. allowing the company to accurately determine the income of the taxable period first).
 

Reconstitution reserve

The Covid 19 pandemic has taken a big bite out of the equity of many companies. In order to allow companies to replenish their equity on a short term, the possibility is offered to temporarily exempt future profits of tax years 2022, 2023, and 2024 within certain limits. This can be done by the creation of a so-called 'reconstitution reserve'.

The reconstitution reserve is limited to 20 mEUR  and is capped to the accounting operating loss on the closing date of financial year 2020 or 2021 (only for companies closing their financial year between 1 January 2020 and 31 July 2020). Irrespective of the aforementioned limits, this reserve is limited to the taxable reserved profit before the creation of the reserve.

This exemption is subject to the "condition of intangibility" which means that the reconstitution reserve must be booked and maintained on a separate liability account. The reconstitution reserve remains exempted as long as the reserve meets all conditions (see also below).

Note that no distribution of the equity can take place. Furthermore, companies creating this reserve must ensure that employment is safeguarded. If the personnel costs fall below a certain level, part of the reconstitution reserve will become taxable.

If you are considering setting up a reconstitution reserve and you also wish to invest in tax shelter projects, we advise you to speed up the investments in tax shelter projects and to process these before the end of the year and thus not to wait until January. Indeed, the creation of a reconstitution reserve may have a negative impact on the application of the tax shelter for audiovisual works or performing arts as the tax shelter exemption is limited to 50% of the taxable reserved profit of the taxable period, before the creation of the exempted tax shelter reserve.

The creation of a reconstitution reserve can also have an impact on the EBITDA interest deduction limitation. This could indeed have a negative impact on the deduction capacity of the company. Moreover, the taxable reserved profit is the starting point for calculating the taxable EBITDA.
 

Immovable rights

We advise you to verify the tax consequences of real estate rights (long-term lease, leasehold, leasing, etc.) that will expire before year-end.
 

Doubtful debtors

It is recommended to review the provisions made by year-end and to ensure that they are sufficiently supported to justify the probable loss of the receivable. It is also recommended to review, and where necessary refine, the methodology used for setting up a provision. Finally, it is crucial to take into result the permanently lost receivables in the correct financial year in order to preserve the tax deductibility of the costs (e.g. in the year of closure of a bankruptcy). 
 

Provisions

Furthermore, we would like to remind you of the conditions of the tax deductibility of provisions (for risks and charges, disputes, dismissal, bonus, etc.):

• Recorded in order to face up to well-defined expenses on individualized claims, which, based on current events, are probable to be incurred;
• Determined individually and certainly not on a general basis;
• The expenses for which the provisions are recorded must be deemed to relate to the result of the taxable period in which they are recorded;
• Related to contractual, legal, or regulatory obligations existing at the end of the financial year.
   

Mandatory Disclosure Regime ("MDR/ DAC 6")

We would like to remind you of the reporting obligation under the 'Mandatory Disclosure Regime' (DAC 6 – EU Directive 2018/2019). As a result, your company may be subject to certain reporting obligations for certain cross-border arrangements. The reporting period is very strict as one has only 30 calendar days (which in practice amounts to 22 working days). 
 

Tax credit for research and development costs

For taxable periods ending after 1 April 2022, the payment exemption for the professional withholding tax for researchers and the tax credit for R&D can no longer be combined. The non-exempted part of the professional withholding tax is still eligible for the tax credit for R&D.
 

Support measures for enterprises in response to rising energy costs

• Preliminary draft law on the reform of the taxation of the energy bill;
• Extension by 2 months of the payment term of the assessment notice with regard to income tax;
• General postponement of the payment of withholding tax by 2 months;
• Postponement of payment of the social security contributions for the third and fourth quarters of 2022, as well as for the first quarter of 2023 and for the annual leave in 2022.
   

Announced tax reform – preliminary draft

• Abolition of the notional interest deduction;
• Temporary adjustment of the "basket" for corporate income tax from 70% to 40%*;
• Modification of the calculation of foreign tax credit on royalties;
• Reform of the copyright tax system.

* The application of the basket for certain tax attributes (e.g. tax losses carried forward, dividend received deduction carried forward, etc.) is currently limited to 1 mEUR, plus 70% of the remaining taxable profit exceeding 1 mEUR. As from the tax year 2024 (linked to taxable periods that start at the earliest on 1 January 2023), the percentage will be reduced from 70% to 40%. This will increase the minimum taxable base with an immediate cash-out impact

In order to anticipate this measure, it may be useful to accelerate taxed transactions and to make optimal use of the innovation deduction, dividend received deduction, and tax losses carried forward of the financial year 2022 before year-end.