As we reach mid-summer, it’s time to do a short wrap-up of some of the recent tax developments to keep you up to date in this ever-changing tax landscape. In this update we will cover the following topics:
- Council of Ministers accept the Belgian implementation of the Public CbCR Directive
- Belgian Parliament considers bill to amend CFC Rules
- No agreement reached on the proposed Belgian tax reform
- Additional publications in the context of Pillar One and Pillar Two
Council of Ministers accepts the Belgian implementation of the Public CbCR Directive
The EU Directive on Public Country-by-Country Reporting, adopted on 11 November 2021, requires in-scope European and non-European multinational groups or standalone undertakings to publicly disclose certain financial data. On 20 July 2023, the Council of Ministers accepted the draft bill to implement the public disclosure requirements included in the EU Directive. In short, companies with a turnover of more than MEUR 750 and non-European ultimate parent companies that are economically active in Belgium with one or more large subsidiaries or large branches must publish information regarding income taxes.
On the same day, the European Commission sent a letter of formal notice to 17 Member States including Belgium, Luxembourg and the Netherlands for failure to notify national measures fully transposing the Directive by the deadline of 22 June 2023.
Our takeaway: since CbCR is the basis for the Pillar 2 Transitional CbC Safe Harbour and considering the upcoming public CbCR requirements for financial years starting on or after June 2024 within the EU (if you are not operating in Romania), now is the time to have a critical look at your CbC reporting process and how you will frame the publication within your broader (tax) transparency agenda.
Belgian Parliament considers bill to amend CFC Rules
In response to Belgium’s referral to the CJEU by the European Commission for failing to correctly transpose the controlled foreign corporation (CFC) rules under the EU Anti-Tax Avoidance Directive 2016/1164 (ATAD), on 26 June, the Belgian Chamber of Representatives accepted for consideration the draft bill (NL/FR) to amend CFC rules to complete the transposition of EU Directive 2016/1164 (ATAD) on combating avoidance measures that affect the functioning of the internal market.
The bill, however, not only rectifies Belgium’s potential breach of ATAD with regard to the non-deductibility of taxes paid in Belgium, but also provides for a change in approach to the CFC rules (ATAD provided for two options for the Member States in this respect) to increase effectiveness.
In summary, the bill contains the following changes:
- Certain types of passive income (e.g. interest, royalties, dividends etc) derived by CFCs of a Belgian taxpayer will need to be included in the taxpayer’s tax base, unless (i) the CFC is tax resident in the EEA and (ii) the CFC carries out genuine economic activities at its place of business.
- The CFC income to be included in the taxable income of the Belgian taxpayer takes into account any costs borne by the CFC related to said income. The Belgian taxpayer may offset foreign tax on the CFC income against Belgian corporation tax within certain limitations.
If this legislation is enacted, these new rules will signify a departure from the current CFC rules, meaning that all Belgian taxpayers with CFCs should reassess the impact of the CFC legislation. Needless to say that interaction with Pillar 2 (and Qualified Domestic Minimum Top-up Taxes) will also need to be monitored.
Our takeaway: The bill proposes CFC rule changes and broadens the scope of the CFC rules. If implemented, Belgian taxpayers with CFCs will need to re-evaluate the potential impact, also taking into account the upcoming Pillar 2 rules.
No agreement reached on the proposed Belgian tax reform
On 2 March 2023, the Belgian Minister of Finance launched a proposal for a first phase in the Belgian reform. The proposal included various measures such as a reduction of the personal income tax on employment income via an adjustment of the (progressive) personal income tax rate brackets and an increase of the tax free (lump sum) amount as well as the introduction of certain new incentives for green investments.
After spending the last five weeks in intensive consultations with the coalition partners of the federal government, the core cabinet has failed to reach an agreement on the proposed tax reform. Given the elections in FY 2024, it is unlikely that any tax reform proposals will be enacted in the following months.
Our takeaway: the lack of agreement and the upcoming federal elections mean that it is unlikely that we should expect a significant Belgian tax reform in 2024.
Additional publications in the context of Pillar One and Pillar Two
On the international scene,the OECD/G20 Inclusive Framework on BEPS (IF) released, on the 17th of july, four important documents related to Pillar One and Pillar Two, following the Outcome Statement on 11 July with an update on the status and timeline for implementing Amount A and B of Pillar One and Pillar Two’s Subject-to-Tax Rule.
Pillar One: Amount B
The OECD released an updated public consultation document on Amount B of Pillar One, which attempts to simplify the transfer pricing of certain baseline wholesale marketing and distribution activities. This is envisaged by providing agreed returns, as laid out in a ‘pricing matrix’, to the source country on such activities. The consultation document outlines the design elements of Amount B and identifies aspects which require further work. The IF plans to approve a final report on Amount B and incorporate key content into the OECD Transfer Pricing Guidelines by January 2024. For more details, please also refer to the global policy alert.
Pillar Two: Administrative guidance
In addition to the first set of Administrative Guidance published on 2 February 2023, a second set of Administrative Guidance was released. The Guidance includes a range of issues where stakeholders sought additional clarity, including the Qualified Domestic Minimum Top-up Tax (QDMTT) and Transitional UTPR Safe Harbours, the treatment of transferable tax credits, and the application of the Substance Based Income Exclusion (SBIE). For more details, please also refer to the global policy alert.
Pillar Two: GloBE Information Return (GIR)
An updated version of the GloBE Information Return (GIR) was also released. The GIR is the means by which an MNE Group will submit details to a tax authority to allow for an appropriate risk assessment of the MNE Group and its constituent entities, and to evaluate the correctness of the Group’s Top-up Tax liabilities, if any.
The GIR reflects several changes to the original GIR public consultation document, most notably to include a transitional framework that allows for simplified jurisdictional reporting for all fiscal years beginning on or before 31 December 2028 but not including a fiscal year that ends after 30 June 2030. During this transitional period, reporting can be done on a jurisdictional basis, rather than on a constituent entity-by-constituent entity basis, although again some considerable level of detail remains. For more details, please also refer to the global policy alert.
Pillar Two: Subject-to-Tax-Rule (STTR)
Finally, the OECD IF released a report with a model treaty text to give effect to the Subject-to-Tax-Rule (STTR), together with an accompanying commentary explaining the purpose and operation of the STTR.
STTR is a treaty-based rule that allows source countries to impose an additional tax liability on certain intragroup payments in the event that the recipient is subject to a nominal corporate tax rate of less than 9% (adjusted for tax base reductions such as tax exemptions and tax credits). STTR takes priority over the GloBE Rules (Qualified Domestic Minimum Top-up Tax, Income Inclusion Rule and Undertaxed profit rule) and is creditable as a covered tax. Implementation by countries is planned to start in October 2023 via a multilateral instrument. For more details, please refer to the global policy alert.
Our takeaway: the documents and guidance released by the OECD bring greater clarity to matters, however, questions remain for some practical issues and of course on whether/how countries will incorporate this latest guidance into the implementation of their local GloBE rules.
For more insights on any of the above, please reach out to your regular PwC contact, Evi Geerts or Carla Buyens.
