In 2023, new ways of performing carve-out and integrating your business became possible from a legal perspective. Meanwhile the tax law has also been adapted to enable you to perform these new ways of reorganising your group structure tax-free. Nevertheless, still some problems remain and sufficient attention should be paid to the tax consequences of the intended transactions.
Since 16 June 2023, three new types of reorganisations have been introduced in the Companies and Associations Code, i.e. the ‘simplified side stream merger’, the ‘disproportionate partial demerger’ and the ‘cross-border partial demerger by separation’. However, tax law uses autonomous definitions, which were not adapted. As a result, the new types of reorganisations could not take place tax-neutrally for corporate income tax purposes. The law of 28 December 2023 containing various tax provisions, has adjusted the tax definitions with retroactive effect to 16 June 2023. But this does not yet solve all problems…
The first new type of reorganisation is the ‘simplified side stream merger’ whereby the issuance of new shares is not required anymore if both the absorbed company and the absorbing company are held by a single common shareholder or where multiple shareholders hold the same pro rata holding of shares in both companies.
It should be highlighted that the corporate law definition indicates that the ‘simplified side stream merger’ is possible if all shares and other voting securities issued by the merged companies are directly or indirectly owned by one and the same person. The tax definition, on the other hand, does not refer to indirect ownership and indicates that the shares and other voting securities must be (directly!) owned by one and the same person. This implies that a simplified side stream merger can still not take place tax neutrally in case of ‘indirect ownership’.
Furthermore, even a tax-neutral merger may in certain circumstances give rise to a taxable basis and/or a deemed dividend distribution in the hands of the acquired company to the extent that the transaction is not remunerated by the issuance of new shares. This is typically the case for a ‘parent-subsidiary merger’, but not for a ‘side stream merger’. However, as this tax rule has not (yet?) been modified, this may result in complex situations whereby the tax treatment of a parent-subsidiary merger has to be applied on the simplified side stream merger. Therefore, careful attention still has to be paid if a simplified side stream merger would be envisaged.
The second new type of reorganisation is the ‘disproportional partial demerger’. This is a partial demerger whereby the shares of the receiving company can be allocated in a disproportionate way between the shareholders of the partially demerged company (or even entirely to only one shareholder) and whereby the partially demerged company can also issue additional shares to one or more of its shareholders.
This gives now a lot of flexibility, whereby it is e.g. possible that one shareholder receives all the new shares issued by the receiving company while the other shareholder receives additional shares of the partially demerged company. This allows that the fair market value of its (increased) participation in the company after the partial demerger equals the fair market value of its (lower) participation in the company prior to the partial demerger.
The third new type of reorganisation is the ‘cross-border partial demerger by separation’, This is a cross-border partial demerger whereby the new shares of the receiving company are not transferred to the shareholders of the partially demerged company, but to the partially demerged company itself. This transaction is not possible if all merging companies are Belgian tax residents. Furthermore, it is subject to a new legal procedure which requires i.a. obtaining fiscal and social certificates.
The cross-border partial demerger by separation has some features of a ‘contribution’ (as the transferring company receives the new shares) whereby it is no longer required that the contribution constitutes a ‘line of business’ for the transaction to be tax neutral. Nevertheless, it still a ‘partial demerger’, which implies e.g. that the Belgian branch of the receiving company will take over part of the fiscal net equity of the partially demerged company, and that part of the tax losses of the partially demerged company may be transferred to the Belgian branch of the receiving company.
To conclude, the new reorganisation formats introduce additional restructuring flexibility in a tax-neutral way. But it is key to remain vigilant to some unsolved difficulties which need special fiscal attention before any implementation.
Thanks to Christophe Rapoye, Alice Andries and Max Valkenborg for their contribution