In April 2016, the Federal government, in the framework of the agreement on additional budgetary and recovery measures following the 2016 budgetary control exercise, announced a reform of the Belgian corporate income tax (see our news flash on 11 April 2016).
In July 2016, the ‘High Finance Council’ has published a report examining the different options to reform the corporate income tax in a post-BEPS environment.
In August 2016, various articles in the press were published confirming that the Belgian government is currently working on a major corporate tax reform.
What are the ‘positive’ measures on the table?
Here are some measures that are currently under review, but still being discussed and hence subject to changes:
- Progressive reduction of the Belgian corporate tax rate from 33.99% to 20% by 2020
- Full exemption of capital gains on shares (currently taxable at 0.412% for non SMEs)
- Decrease in the capital gains tax rate on shares realised within 12 months of the acquisition from 25 % to 20 % by 2018
- Increase in the Dividend Received Deduction (DRD) up to 100 % (instead of 95% as is the case now)
- Abolition of the fairness tax
- Tax exemption for starting small businesses during the first five years under certain conditions
What are the ‘compensatory’ measures being discussed (again still in discussion phase)?
- Increase in the withholding tax rate from 27% to 30%
- Abolition of various deductions, such as:
- notional interest deduction
- investment deduction
However, the innovation income deduction (replacing the patent income deduction) and the tax shelter in the audio-visual sector would be maintained.
- Limitation of the use of tax losses carried forward and dividend received deduction (e.g. limited to MEUR 1 + 60% above MEUR 1)
- Less favourable depreciation regime
- Limitation of the deduction of certain business expenses (reception costs, restaurant expenses or business gifts) up to 5% of the gross revenue
- In the absence of corporate tax return, the minimum taxable lump-sum would amount to 40.000 € (instead of currently 19.000 €) from 2017
- Fight against the use of companies only for tax purposes
Tax and accounting impact
If the above measures would be implemented, these could have a material tax and accounting impact. E.g.
- What about the timing of transactions?
- What about the impact on valuations (e.g. discounted cash flow on an after-tax basis)?
- What about the accounting impact?
Companies reporting under US GAAP or IFRS must consider the reduced tax rate(s) effect on deferred tax balances when the amendments to the tax law will be (substantively) enacted. The effect of the reduced tax rates may require a detailed analysis to determine when the temporary differences existing upon the date of (substantive) enactment are expected to reverse.
Not only the tax rate change(s) should be considered for both deferred and current taxes but also all other changes in the tax legislation that are relevant for the legal entity/branch and the group (consolidated level) at hand.
Companies should also consider appropriate financial statement disclosures related to the changes in tax law.
The above corporate income tax reform has not yet been drafted and is still subject to further changes.