The commonly named “catch-all” clause (article 228, §3 BITC) has been recently amended.
One of the main points requiring special attention is the addition of a new condition of application, namely the requirement of any direct or indirect link of interdependence.
Below, we provide some background as regards the previous version of the “catch-all” clause since its enactment through the Act of 13 December 2012 and the new amendments recently adopted.
In essence, the “catch-all” clause applied to taxation payments made to non-residents if the following conditions are met:
- the income received by the non-resident would be taxable if received by a Belgian resident;
- the income is borne by a Belgian resident; and
- the income is taxable in Belgium on the basis of a double tax treaty (“DTT”) or, in case no DTT applies, the non-resident cannot demonstrate that he is effectively taxed on the income in his State of residence.
Except if the income was declared by the beneficiary through a non-resident income tax return, the taxation occurred through a 16.5% withholding tax (potentially reduced by DTT application) on gross income as of 1st March 2013.
The main purpose of the Belgian legislator was initially to make sure that Belgium could exercise its taxation power based on its domestic tax rules in situations where the DTTs in force allocated the taxation power to Belgium. According to parliamentary works concerning the Act of 13 December 2012, the “catch-all” clause was mainly meant to be applicable to fees for technical services paid to residents of the following eight countries with which Belgium concluded a DTT: Argentina, Brazil, Ghana, India, Morocco, Romania, Rwanda and Tunisia.
However, taking into account several remarks from the Council of State in the legislative process, the legal text had ultimately been drafted so broadly that – based on a literal reading of the law – it would have caught all sorts of payments made to non-residents in case no DTT applied (hence commonly referred to as “catch-all” provision).
In this framework, the Belgian Tax Authorities (“BTA”) published some administrative guidance dated 23 July 2014 providing some clarifications with regard to the practicalities of article 228, §3 BITC. In that guidance, the BTA have (i) clarified that the rule only applies to remuneration of services and, (ii) adopted a de minimis rule under which the provision only applied to income as far it exceeds an amount of €38,000 (calculated per year and per beneficiary).
Despite these clarifications, several questions regarding the scope of the “catch-all” clause remained unanswered, considering that the wording of article 228, §3 BITC had remained unchanged in the meantime.
Article 228, §3 BITC has finally been amended by the Act of 18 December 2016. The amendments brought retroactively enter into force on 1 July 2016.
The new provision will only apply if the following conditions are all met:
- Revenues stem from “any provision of services”;
- Revenues qualify as benefits or profit in the hands of the non-resident beneficiary;
- The services are provided to an individual tax resident in Belgium in the framework of his business activity, a corporation, a taxpayer subject to the legal entities tax or a Belgian establishment;
- There are (in)direct links of interdependence between the foreign supplier and its Belgian client;
- Such revenues are taxable in Belgium according to a DTT or, in the absence of any DTT, if the non-resident taxpayer does not provide evidence that income is actually taxed in the State where he is resident.
As regards the interpretation of “any direct or indirect links of interdependence”, reference has been made to the administrative commentaries to articles 26 and 79 BITC, respectively, which use this standard for abnormal or gratuitous benefits. Given the new condition of “any direct or indirect links of interdependence”, provision of services between non-related parties should thus in principle remain out of scope.
Even though the scope of the “catch-all” clause is now more narrowed-down than it was, one may regret that the new legal provisions still do not clearly define which kind of services are in scope (i.e. “any provision of services”), bearing in mind that, in 2012, the Belgian legislator initially wanted to mainly cover the remuneration for technical assistance. Consequently, this may still cause some legal uncertainty to persist in some specific instances where no DTT applies. Questions could also arise as regards the notion of “direct or indirect links of interdependence” as it is, in most cases, highly fact-driven.
Should you have any questions regarding the potential impact the new modifications may still have on your business, please do not hesitate to contact us.