Yesterday, the Finance Minister clarified the scope of the Cayman tax with respect to funds. According to the Minister, the tax covers private, institutional and public funds, which are de facto privately managed. Besides, should it prove necessary to legislate further, that would be done quickly and efficiently, according to the Minister.
The Cayman Tax in a nutshell
As a recall, the new Belgian “CFC Rule”, or “Cayman Tax”, was adopted in August 2015. Its scope was extended in December 2015.
The Cayman tax is a tax charge on certain income from certain legal constructions, in the hands of Belgian individuals (and Belgian entities subject to legal entities income tax). Legal constructions within the scope of the Cayman Tax are deemed to be tax transparent. A distinction is made between two categories of legal constructions:
- trusts and other structures without legal personality;
- foreign entities (with legal personality) that are subject to an effective tax rate lower than 15%. Within the European Economic Area (EEA), only the types of entities listed in a Royal Decree are in scope.
The taxpayer has to mention in his yearly tax return the existence of (and details about) a legal construction of which he (or his spouse or his children) is the founder or the third-party beneficiary.
The measure (including its December 2015 scope extension) is applicable to income that was obtained, attributed or paid by a legal construction as from 1 January 2015.
Under these new provisions, the income from certain legal constructions becomes taxable for the private individual before actual distribution of the income. Consequently, the owner (founder, beneficiary) may be taxed on income that he has not yet received.
What about foreign funds?
As mentioned above, within the EEA, only the types of entities listed in a Royal Decree are concerned here. It includes, in particular, investment funds whose rights are held by either one person or several persons that are related to one other (assessment to be made per sub-fund).
A debate is raging between tax practitioners as to whether EEA funds established for private investment purposes fall into the scope of the Cayman Tax.
Yesterday, the Minister put his cards on the table: the Cayman Tax, after the December 2015 changes, “covers private, institutional and public funds, which are de facto privately managed”.
Looking forward, the Minister also clearly states that “an evaluation of the tax will be carried out by year end. Should making any changes prove necessary, the Government intends to make sure that this will be done”.
Finally, to the question whether “a gap still exists in this tax because the tax transparency only applies if the Belgian taxpayer is directly involved in an offshore construction”, the Minister replied that “the issue of double structures is well known. (…) we would completely miss the objective of the Cayman Tax if it were sufficient to multiply the legal arrangements to escape the sanction. (…) of course, people will always seek to create new structures to escape the Cayman tax. We are closely monitoring the situation and should it prove necessary to legislate further, we will do so quickly and efficiently.”
The first yearly tax return complying with the “Cayman Tax” (taxable income collected in 2015) must in principle be filed by 30 June 2016 (13 July for electronic filing or 27 October when the filing is done by a representative). It is time for the taxpayers concerned to decide whether or not they will abide by the Minister’s position.
If so, they will need to collect, as soon as possible, some data from their asset managers in order to properly document their taxable basis in accordance with the tax transparency principles.
For more information, here is the link to the Finance Minister’s response to the joined oral parliamentary questions no. 11276 and no. 11277 (see pp. 25-27).