A new year typically entails new tax measures.
Below you will find a brief overview of some important Belgian corporate income tax measures that have entered into force, or are expected to enter into force, in 2019 (as part of the second phase of the Belgian tax reform). For a detailed overview of the measures, we refer to our tax reform website.
ATAD measures
In the second phase of the Belgian tax reform (applicable from assessment year 2020, financial years starting on or after 1 January 2019), various measures of EU Anti-Tax Avoidance Directive (“ATAD”) I & II have entered into force in Belgium.
It concerns, among others:
- anti-hybrid rules (to prevent hybrid mismatches),
- Controlled Foreign Corporations (“CFC”) regulations,
- exit taxation measures.
The EBITDA rule (see below) should in principle have been applicable too but has not become operative until today, as the draft law has not yet been formally voted by Belgian Parliament.
Anti-hybrid rules
A series of rules and definitions have now been inserted into Belgian tax legislation to tackle hybrid mismatches, tax residency mismatches and imported mismatches. As the anti-hybrid rules have been introduced a year earlier than prescribed by the ATAD, it will be key to assess whether there are, apart from hybrid mismatches directly linked to Belgium, any imported mismatches that can apply if linked to Belgium. Consequently, these rules definitely need to be considered when determining the tax deductibility of any payment made from Belgium.
CFC
Following the new CFC rules, certain non-distributed income can become taxable in Belgium at the level of the controlling taxpayer. Under the so-called transactional approach, non-distributed income of the CFC arising from (a series of) non-genuine arrangements put in place for the essential purpose of obtaining a tax advantage becomes taxable. This is the case where the CFC would not own the assets or would not have assumed the risks that generate all or part of its income if it had not been controlled by a company that performs the significant people functions that are relevant to those assets and risks and which are instrumental in generating the CFC’s income.
Consequently, it is key to reassess whether the transfer pricing policy within the group has been set correctly and whether any link can be made with significant people functions present in Belgium. Note that advance legal certainty on the new CFC regime can be obtained from the Belgian Rulings Office (see our earlier newsflash in this respect).
Exit taxation
The current exit taxation rules under Belgian corporate tax law have been further completed in that they now cover all transactions referred to in ATAD I (e.g. transfers of assets from head office to PE). In addition, a step-up is introduced for inbound transfers from another Member State (or from third countries provided that the gain has been subject to tax in the exit State and Belgium has concluded with the exit State a bilateral treaty or a bilateral or multilateral instrument that allows for an exchange of information). There is a possibility to defer the exit taxation over 5 years as well as an option to request a guarantee (in line with case law of the EU Court of Justice).
EBITDA rule
In addition, as stated in our newsflash of 31 July 2018, the Belgian Government has announced to advance the implementation of the interest limitation rule by one year (commonly referred to as the “30% EBITDA rule”), from 2020 (assessment year 2021, financial years starting on or after 1 January 2020) to 2019 (assessment year 2020, financial years starting on or after 1 January 2019). However, note that, until today, the (draft) law to advance this implementation has not been voted yet. The EBITDA rule as such (basically limiting the interest deduction to 30% of a company’s EBITDA) was voted, but it still mentions the “old” entry into force date of assessment year 2021.
Note, however, that the ATAD requires Member States to have an EBITDA rule in force as of 1 January 2019. As Belgium is not mentioned in the European Commission’s report containing the EU Member States having measures that are equally effective as the interest limitation rule, and Belgium may therefore postpone the implementation date of this measure, it needs to take action as soon as possible in this respect.
Furthermore, a Royal Decree is expected to define among others the concept of “interest” for EBITDA rule purposes, and to allocate the “EUR 3-million threshold” over the different entities of the group. Up until today, this Royal Decree has not been finalized.
Follow our tax news updates for further information in the coming months.
Tax consolidation
Effective 1 January 2019, Belgium has introduced a system of horizontal and vertical fiscal consolidation based on a group contribution regime. In the framework of the regime, Belgian companies (and branches) will be able to transfer taxable profits to other Belgian affiliated companies (and branches) with the aim to offset these profits against current-year tax losses. Group companies concerned have to conclude a “group contribution agreement” that has to meet certain requirements and be drafted and agreed within a set timeframe.
During the year, it will consequently be necessary to already monitor or estimate whether Belgian companies of the group will be loss-making during the year concerned and whether a group contribution will occur, as these elements will also have an impact on prepayments for the year (and other tax aspects). It will also be important to assess such matters in a timely manner so as to enable your company to fulfil the necessary formalities (agreement, payments, etc.) in time.
Corporate tax rate
The nominal corporate income tax rate remains 29.58% in 2019. From 1 January 2020, the nominal corporate income tax rate will be 25%.
Needless to say, your local PwC contact is available to help you assess the impact of the tax reform for your organisation or group.
