During the holidays and after lengthy negotiations, the EU and the UK agreed on a Brexit – deal.
As foreseen, on 1 January 2021, the transition period during which the UK was still considered a Member State of the EU and European Economic Area (EEA) has ended. Among a variety of topics, this is also relevant for Belgian tax purposes, and more particular, may have some adverse M&A related consequences.
In the first place, UK companies no longer qualify as ‘Intra-European’ companies. This implies that an outbound merger or (partial) demerger of a Belgian company into a UK company can no longer take place tax neutrally. It will be considered as a (taxable) liquidation of the Belgian company for corporate income tax purposes (even if its activities and reserves are maintained in a Belgian branch of the UK company) potentially resulting in a tax cash out and a deemed dividend distribution.
Moreover, a contribution by a Belgian company into a UK company will always be a taxable transaction in Belgium, even if it relates to a line of business or universality of goods.
Secondly, Belgian private individuals selling a ‘material interest’ in a Belgian company to a UK company – or to an EEA company that further transfers these shares to a UK company within 12 months – will be taxed on the capital gain at 16.5% (+ local taxes), whereas in the past such capital gain could be tax free in certain circumstances.
Dividends, interest and royalties paid by a Belgian company to a UK company can still benefit from withholding tax exemption in many cases.
For dividends, nothing has changed as Belgium has extended the full withholding tax exemption foreseen in the EU Parent-Subsidiary Directive to all countries with which Belgium concluded a double tax treaty with an exchange of information clause (such as the UK).
On the flip side, there is no such extension of the EU Interest and Royalty Directive in Belgian tax law. A taxpayer will now have to rely on the Belgium-UK double tax treaty to obtain a withholding tax exemption. Note that the formalities to obtain a treaty exemption (tax forms ‘276 Int-Aut’ or ‘276 R’, to be stamped by the UK tax authorities) are much stricter and burdensome than under the EU Interest & Royalty Directive (certificate issued by the beneficiary of the interest or royalty).
It is clear that careful attention will have to be paid if UK companies are part of a (acquisition) structuring, as old habits can no longer be relied upon.