New corporate tax measures as from 1 January 2023

Starting 1 January 2023, various new corporate income tax measures entered into force for Belgian companies or Belgian permanent establishments. First, the Law dated 26 December 2022 (“Programmawet”) enacted the 2023 budgetary measures as approved by the Belgian federal government. From a corporate tax perspective, the new measures include a temporary increase of the minimum taxable basis, the elimination of the notional interest deduction, the limitation of the foreign tax credit for royalty income, and the limited deductibility of certain annual taxes for the financial sector.

Second, the Law dated 21 December 2022 transposed the EU Directive (2021/514), extending the Directive on Administrative Cooperation (“DAC”) in the field of taxation to digital platforms and their sellers (“DAC 7”). These new rules also kicked in on 1 January 2023 and replace the previously existing Belgian regime for platform operators.
 

Limitation rule for the use of certain tax attributes

Since 2018, Belgian tax law limits the combined use of certain tax attributes (per taxable period) to €1 million, increased by 70% of the taxable profit exceeding the amount of €1 million. This limitation rule applies to the notional interest deduction (NID), carried forward tax losses, carried forward dividend received deduction, carried forward innovation deduction, and carried forward NID. As a result of the limitation rule, 30% of the taxable profit exceeding the amount of €1 million constitutes a minimal taxable basis.

As of tax year 2024 (financial years starting on or after 1 January 2023), the threshold will be reduced from 70% to 40% of the taxable profit exceeding the amount of €1 million. Consequently, this measure increases the amount of the minimum taxable basis to 60% of the taxable profit exceeding the amount of €1 million.

The federal government indicated that this additional limitation (from 70% to 40%) is only temporary and will be abolished (going back to 70%) as soon as the global minimum tax of 15% enters into force. Following the adoption of the EU Directive in December 2022, the Belgian government should implement the global minimum tax as part of the Pillar Two/GloBE rules by the end of 2023 to have the rules  applicable as of 1 January 2024 (see our previous alert: EU Member States unanimously adopt Directive implementing Pillar Two Global Minimum Tax rules | EY - Global.
 

Elimination of the Notional Interest Deduction (NID) regime

The NID is a deemed (off-balance) tax deduction based on the qualifying equity without an effective interest payment or booking.

Recently, the NID was significantly redesigned, as part of the Belgian corporate tax reform (in 2017). The reformed NID became less relevant given the restricted calculation methodology and the reduced interest rate in the last couple of years. The Law dated 26 December 2022 entirely abolishes the NID regime for taxable periods ending on or after 31 December 2023. Changes to the financial year-end (as from 11 October 2022, being the date when the budgetary measures were announced) will have no effect on the entry into force of this measure. Carried forward NID, accumulated in previous taxable periods, can still be deducted going forward.

Interesting to note is that the Belgian federal government abolished its NID regime when the EU is on the verge of introducing a similar measure, being a debt-to-equity bias reduction allowance (DEBRA – we refer to our earlier alert: What does the new EU Directive Proposal (DEBRA) mean for the Belgian notional interest deduction? (ey.com). The draft EU Directive was launched in 2022, but it is expected that DEBRA will rather be integrated within BEFIT (“Business in Europe: Framework for Income Taxation”), the proposed framework providing for a single corporate tax rulebook for the EU.
 

Foreign tax credit (FTC) for royalty-income

Belgium provides for unilateral relief from double taxation on certain foreign-source income (such as royalties) under the form of a foreign tax credit (FTC). Based on previous legislation, a lump-sum approach was applied for royalties with a standard 15% credit, irrespective of the withholding tax that was actually levied in the source state. This provided for so called “tax sparing” opportunities.

The FTC remains in place but will be limited – as from 1 January 2023 – to the withholding tax actually in the source state, with a maximum cap of 15%.
 

Limited deduction of certain annual taxes for the financial sector

According to previous legislation, certain annual taxes for credit institutions, collective investment, and insurance undertakings were 100% deductible for corporate income tax purposes. As of 1 January 2023, this tax deductibility is limited to 20%, resulting in a disallowed expense that equals 80% of these annual taxes.
 

Implementation of DAC 7 transparency rules into Belgian domestic legislation

On 7 February 2020, the European Commission opened a public consultation to strengthen the exchange of information framework in the field of taxation focusing on the collection and exchange of data from digital platform providers. As part of a tax package for fair and simple taxation, the Commission published DAC7, a legislative proposal for revision of the DAC, to address the challenges posed by the digital platform economy on 15 July 2020

On 22 March 2021, the Council unanimously adopted the revised DAC7 to strengthen administrative cooperation and include reporting of sales through digital platforms. The revised text of DAC7, as adopted by the Council, still follows the objectives of the Commission’s original proposal of 15 July:

• Introducing reporting requirements for online platforms and a related Exchange of Information framework
• Expanding existing administrative assistance rules, including the introduction of automatic Exchange of Information on royalties and facilitation of joint audits

The EU intends to develop and expand on tax transparency as a means of ensuring tax compliance. The obligation to report income earned through digital platforms and the exchange of such information is aimed at helping Member States receive a full set of information on sellers on the digital platforms. A harmonized framework across the EU for reporting is aimed at increasing legal certainty and providing more clarity to the digital platform operators, who currently may face different reporting obligations in individual counties. Notably, the reporting obligations are wider than the obligations proposed by the OECD and are not limited to platforms in the EU. For more information in relation to DAC7, we refer to our separate tax alert EU adopts tax transparency rules for digital platforms (DAC7) | EY - Global.

Following the formal adoption of DAC 7 by the Council, Member States had to transpose the amendments into national law. The new provisions apply as of 1 January 2023 and the first reporting will be required by 31 January 2024. As from 1 January 2023, digital platforms should timely carry out due diligence and information collection processes. As the scope of the DAC 7 provisions is broader than the traditional digital platforms, affected companies should assess what changes to their processes and technology might be needed to enable reporting according to the newly transposed national law (e.g. information regarding the sellers on the digital platforms and the income generated in this respect by those sellers).