In case your Belgian company has a foreign participation which it controls and of which the effective tax rate is lower than 12.5%, based on the taxable profit of that foreign entity recalculated according to Belgian tax rules, an additional tax could arise on the undistributed passive income of the foreign participation. In other words, each year one will have to check whether any of their controlled foreign participations would qualify as a CFC (if the 12.5% test is met) and each year one will have to conclude whether any CFC reporting needs to be done via the Belgian corporate income tax return and whether any CFC taxation will occur.
Exemptions of CFC taxation exist in case of (a.o.) sufficient economic substance of the foreign participation. However the reporting of the CFC in the tax return remains mandatory, even if an exemption would apply (first reporting to be done in the corporate income tax return regarding tax year 2024).
Further, the combination with Pillar 2, Cayman tax, double tax treaties and dividend received deduction will be important to review to avoid double taxation.
In an M&A context, this new legislation could impact the effective tax rate (ETR) and the tax cash out of the group and/or portfolio companies.
For more information about the new CFC legislation and some attention points in an M&A context, please follow this link.
Contacts:
Christophe Rapoye or Elise Van Zegbroeck
