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External financing is increasingly more difficult to obtain. How does it impact transfer pricing policies?

David Ledure — 2024-04-23 10:52

According to the latest update of the quarterly bank lending survey of the European Central Bank (“ECB”), the loan application rejection rate within the Eurosystem continued to increase during the first quarter of 2024, albeit at a slower rate than the previous quarter. In addition, Euro area banks reported a small further net tightening of their credit standards for loans or credit lines to enterprises. From a transfer pricing perspective, this raises the question whether intra-group borrowers would also be able to attract similar debt amounts in the open market. Documenting and substantiating the debt capacity of an intra-group borrower is essential from a transfer pricing perspective.

Market observation

Quarterly evolution of the increase in rejected loan applications within the Euro area Source: The euro area bank lending survey - First quarter of 2024, series key: BLS.Q.U2.ALL.O.E.Z.B3.RA.D.WF4 The above graph depicts the variations in the net increase of rejected loan applications over the last 8 years. Whilst it is clear that the peakof the increase (2022-2023) seems to have ended, the increase continues.

Intercompany loans and debt capacity

Whenever entering into intercompany financing transactions, it is crucial to consider the relevant transfer pricing aspects, such as applying an arm’s length interest rate and considering the level of debt of the borrower. A borrower’s debt capacity relates to the financial capacity of the borrower to carry the burden of the intercompany loan. In line with the expectations of banks, an intra-group borrower should be able to service the debt it assumes, i.e. it must be able to meet its interest payment obligations and to repay or refinance the loan at maturity (so-called “could test”). Also, the level of debt attracted by the borrower must be at arm’s length, meaning that an independent party operating in similar circumstances would also be willing to attract such level of debt (so-called “would’ test). When the borrower meets both these tests, the intercompany loan is better protected under the arm’s length principle when challenged by tax authorities.

Key takeaways and considerations

Throughout the Euro area, the ECB noted that the rejected rates continued to increase.
Multinational undertakings generally finance group affiliates through intra-group loans. To be at arm’s length, it is important to substantiate that the intra-group borrower could and would attract a similar level of debt at similar terms and conditions.
The debt capacity of a borrower is assessed by reviewing whether the borrower could service the debt (pay back and / or refinance) and whether an independent company would assume a similar debt in similar circumstances.

Please feel free to get in touch with David Ledure or Maxime Dessy to discuss this matter.

Adapted tax provisions regarding ‘judicial reorganisations’ offer new opportunities… and challenges

Nancy De Beule — 2024-04-19 10:28

Recent adjustments of tax provisions regarding ‘judicial reorganizations’ offer new opportunities and challenges for distressed companies and their creditors. Most of these adjustments, aligning tax law with the updated insolvency law, entered into force with retroactive effect to 1 September 2023. The law of 28 December 2023 containing various tax measures has adapted the tax rules for both creditors (Art. 48, par 2 BITC92) and debtors (Art. 48/1 BITC92) in case of “judicial reorganizations”. A judicial reorganization is a procedure aiming at enabling a company in financial difficulty to restructure itself in order to continue its activities and be able to reimburse its creditors. During the reorganization, in principle the debtor is protected against its creditors and cannot be declared bankrupt. There are 3 types of judicial reorganization:

The first aims to reach an amicable agreement with one or more creditors on a staggering of payments or the waiver of part of the debt;
The second focuses on securing a collective agreement with the creditors, wherein obtaining more than 50% of the votes is crucial for validating the reorganization plan;
The third involves seeking a potential buyer for the company (transfer under judicial authority). This buyer must commit to continuing the business operations, preserving jobs, and repaying all or a portion of the debt.

Before the adjustments, there was some misalignment between the tax rules for creditors and debtors, and some recent changes in the Code of Economic Law were not taken into account. That could lead to situations where creditors could deduct losses on receivables, while debtors were not taxed on profits from waivers of debt. But also to situations where debtors were taxed on profits from waivers of debt because the type of judicial reorganization applied in the case at hand was not yet covered by tax law. Under the new rules, creditors may benefit from a tax-exemption for impairments on receivables if these are realized in the framework of a Court-approved reorganization plan, amicable agreement or collective agreement. However, 'judicial decisions in the absence of an amicable agreement' are explicitly excluded. This is the situation whereby the Court grants the debtor ‘moderate terms’ with regard to creditors with whom no amicable agreement could be reached. Debtors could already benefit from tax-exemption for profits from waivers of debt received in the framework of a Court-approved reorganization plan or an amicable agreement upon a judicial reorganization. Under the new rules, this has been extended to an amicable agreement outside a judicial reorganization and a collective agreement. Like for creditors, no tax-exemption is possible for debtors in case of ‘moderate terms’. But even more important is that the tax-exemption in the hands of the debtors becomes a ‘temporary’ exemption, whereby the exempt amount will be gradually included in the debtor’s taxable basis. This will be spread over four taxable periods (i.e. from the third to the sixth taxable period subsequent to the taxable period in which the completion or withdrawal of the amicable agreement or plan took place). In principle, ¼ of the previously exempt amount is included in the taxable basis for each taxable period. In case of earlier cessation of activity, any remaining balance must be included in the taxable basis of that year. This will need to be taken into account in the business plan of the debtors going forward. Summarizing, in case of a judicial reorganization, it is now even more key to take into account the tax effect of the measures in order to avoid that part of the advantage of the judicial reorganization is ‘nullified’ because of tax leakages. Thanks goes to Christophe Rapoye, Alice Andries and Brent Celens for their contribution.

Mixed and partial VAT payers: Extended submission deadline for VAT real use deduction method

Lionel Wielemans — 2024-04-10 07:13

Mixed VAT deduction, particularly prevalent among real estate, financial and holding entities, has seen significant changes since last year. For mixed and partial VAT payers employing the real-use deduction method, new specific annual information submission requirements have been introduced, necessitating submissions through the Intervat system.

The required information to be submitted in 2024 includes:

Full VAT Deduction Operations: The percentage of VAT attributed to activities that are exclusively within sectors eligible for full VAT deduction.
No VAT Deduction Operations: The percentage of VAT associated with operations that are solely within sectors not eligible for VAT deduction.
Mixed Operations: The percentage of VAT for activities that span sectors both eligible and ineligible for VAT deduction.
Special Proratas: Submission of any special prorata percentages as applicable to your operations.

Given the complexity of these calculations, which often cannot be directly extracted from standard accounting software and require manual input and analysis for accurate allocation, the Minister of Finance has acknowledged these challenges and extended the submission deadline.

Extended Deadlines for 2024:

Quarterly Filers: The deadline for the 2nd quarter 2024 declaration has been extended to July 20, 2024. An additional extension to August 9, 2024, is available to accommodate the summer holiday period.
Monthly Filers: June 2024 declarations are now due by July 20, 2024, with the same extension to August 9, 2024, applicable for the summer holiday period.

In this year's initial declaration, taxable persons are allowed to submit estimated figures, acknowledging the difficulty of precise calculations. However, the accurate final figures must be reported in the subsequent periodic VAT declaration:

Quarterly Filers: Must submit final figures by the 3rd quarter 2024 declaration, due by October 21, 2024.
Monthly Filers: The final figures for November 2024 must be submitted by December 20, 2024.

For mixed VAT payers applying the general prorata, the delay to report the final and temporary general prorata in the periodic VAT return is a priori also shifted from April to July. Increased scrutiny through audits is anticipated for mixed VAT payers. This highlights the urgent necessity to rigorously evaluate and, if needed, revise your VAT deduction approach to ensure it is both robust and compliant. Our team is prepared to offer guidance, ensuring your VAT tracking and allocation methodologies are efficient and in line with the VAT rules and best practices.

New reporting obligation for tenants to declare certain rent payments: risk of non-deductibility in case of non-compliance!

Tim Pieters — 2024-04-05 12:42

Who is in scope?

This new reporting obligation applies in principle to all legal entities and natural persons who are required to file an income tax return in Belgium. It does not matter whether this concerns personal income tax, corporate income tax, legal entity tax or non-resident tax. However, the reporting obligation is only applicable to natural persons insofar they deduct the rent payments as tax-deductible expenses in their income tax return. Legal entities, on the other hand, are obliged to report regardless of whether they have treated the payments as tax-deductible expenses. Note that not only rent but also real estate rights such as leasehold (‘erfpacht/bail emphytéotique’), building right (‘opstalrecht/droit de superficie’), usufruct (‘vruchtgebruik/ usufruit’) are envisaged by this obligation.

What needs to be reported?

The tenant or rights holder must complete a form 270 MLH with certain information and have it attached as an annex to their annual income tax return. This form must include, among other things: identification of the landlord, the address of the real estate, the rent paid/attributed during the taxable period and the amount which was deducted as tax-deductible expenses. The Belgian tax authorities emphasize that the form 270 MLH must be submitted per property. This means that if the rental payments relate to multiple properties or rental agreements, several forms 270 MLH will have to be completed and attached as an integral part to the tax return.

Exception in case of VAT-compliant invoice

An exception exists when the rented real estate is related to the supply of goods or services carried out by a taxpayer established within the EEA and a VAT-compliant invoice or document has been issued for the rent. In this case, there is no requirement to report the expenses on the form 270 MLH.

Consequences of non-compliance

Failure to adhere to the reporting obligation will result in the non deductibility of the underlying rent expenses. Additionally, non-compliance could also lead to an incomplete filing which could potentially trigger various adverse tax consequences, such as administrative penalties, tax increases etc..

Key takeaway

We advise you to make an assessment of the impact of this new reporting requirement in order to avoid any adverse tax consequences as outlined above. As this formality applies already as from assessment year 2024, this assessment should be made in the coming months.

How can we help?

We are more than happy to assist you in navigating and complying with this new reporting obligation. Please feel free to get in touch with Tim Pieters or Karl Struyf to discuss this matter.

Additional details about the UK CBAM and its onset from January 1, 2027

Alexis De Méyère — 2024-04-05 09:45

Following the EU's lead with the CBAM in October 2023, the UK has initiated its own version, also aiming to achieve its goal of net zero emissions by 2050. The UK announced plans for its CBAM in December 2023, signalling a significant move towards sustainability and carbon pricing. Additional information regarding the planned implementation of the UK CBAM has been made available through a new consultation, scheduled to conclude on 13 June 2024. An overview of this is as follows below:

Aim of the UK CBAM

Address carbon leakage by taxing carbon-intensive imports.
Ensure imported goods face an equivalent carbon price to UK-produced ones.
Linked to the UK ETS.

Key Features of the UK CBAM

Scope covers aluminium, cement, ceramics, fertiliser, glass, hydrogen and iron & steel. It will include some precursor goods that are used in the production process of another good subject to CBAM.
Covers direct and indirect emissions.
The CBAM liability falls on importers or where there are no customs controls, the person on whose behalf the goods are moved to the UK.
CBAM Tax: embedded emissions based on default or actual values and discounted for any carbon price paid abroad.
No UK CBAM liability under a registration threshold of GBP 10,000 per year.
Importers will not be required to purchase and surrender UK CBAM certificates.
HMRC administers the tax.
UK CBAM rate will be set quarterly for each of the seven sectors of goods covered, aligning it with domestic carbon pricing policies.

Administration of the UK CBAM

Annual tax return due by May 2028 (or the period 1 January to 31 December 2027), followed by quarterly reporting (for the period 1 January to 31 March 2028 onwards).
Importers self-assess their liability.
Tax applies when goods are released for consumption in the UK.
Tax payment timing corresponds to annual tax return.

Business Considerations

Uncertainty remains regarding UK CBAMS’s application in Northern Ireland.
Businesses need to adapt systems to manage obligations for both UK and EU CBAM.
Collaboration across supply chains is crucial with both UK and EU CBAM in parallel..

What’s next?

The UK government is seeking views from businesses through consultations. Read here for more information on this.
Responses will shape the final design of the UK CBAM.
Primary legislation expected after consultation analysis.

Both the UK and EU CBAM frameworks show that carbon pricing is gaining importance as governments speed up efforts to reach net zero emissions by 2050. Without a global carbon price, more regions might adopt similar measures to tackle carbon leakage. Although the details of UK CBAM are not yet finalised, if you have any questions or would like to discuss what this entails for your business, please feel free to reach out to one of our experts. We are happy to guide you further.

“Long-lease and lease-back” transactions: a powerful tool to boost your cash position, if tax leakage can be minimised

Grégory Jurion — 2024-04-04 11:16

Introduction (at a glance)

Within the domain of corporate finance, the concepts of "sale and lease-back" and “long-lease and lease-back” refer to a transaction whereby the owner sells, alternatively confers a long lease right on a fixed asset and leases it back from the buyer to regain the utilisation of the asset at hand. Such transactions positively impact a company’s cash position, ensuring sufficient liquidity to reinvest in their core business operations, enabling higher returns to drive growth. We’ve seen an increase in long-lease and lease-back transactions. These transactions are particularly interesting given that the generally accepted tax treatment thereof allows to minimise the cash-out at the moment of concluding the operation with the bank / investor.

Tax costs of a long-lease and lease-back transaction

Upon conclusion of such a financial transaction, it is key to minimise tax leakage. Indeed, the goal of the transaction is to generate as much cash as possible to finance operations, acquisitions, etc. If structured incorrectly, such transaction can trigger important tax costs, including (i) 12/12.5% registration duties on the market value/sales price of the real estate, (ii) an immediate cash-out of 25% corporate income tax on the capital gain and (iii) a potential VAT revision of previously deducted VAT on the construction / renovation. If structured properly, the tax costs can be reduced significantly: (i) First of all, on long-lease transactions (which is a right in rem on a fixed asset which grants the full use of the fixed asset for a maximum period of 99 years), the registration duties amount to 5% (recently increased from 2%) on the price for the long-lease increased with any future long-lease payments. This is, despite the increase, still significantly less than 12%/12.5%. (ii) Secondly, from an accounting perspective, under certain conditions, there will be no immediate recognition of capital gains, but the gain should be spread over the depreciation period of the asset. The Belgian ruling commission has confirmed that this treatment should also be followed for corporate income tax purposes, allowing to defer the impact of a one-shot taxation. (iii) Based on recent case law (so-called Mydibel case), VAT revision could be avoided. Indeed, the CJEU considered the sale and lease back operation a purely financial transaction due to multiple elements amongst other the fact that the building kept being used in an uninterrupted and durable manner before and after the transactions. For this reason, no VAT revision was applied. Note that administration interprets this exception cautiously, often rejecting cases that do not meet the exact conditions, such as when it does not concern a lease but another right in rem or when it concerns a sale and leaseback to a different taxable person. Appropriate structuring is key. In summary, long-lease and lease-back operations can be a vital financing tool for companies. When appropriately structured, the cash generation upon conclusion of the contract can be optimised. PwC can of course support you in making the best decisions in this regard. Please reach out to Grégory Jurion or Kristof Vandepoorte for more information.

Belgian draft law amending the investment deduction and innovation income deduction regime

Pieter Deré — 2024-04-02 12:57

On 29 February 2024, a draft law was submitted covering (amongst others) the investment deduction regime. The proposed changes to the investment deduction included in the preliminary draft law have largely been retained in the draft law submitted by the Belgian government to parliament (see also our newsflash of 14 November 2023). The following items were adjusted compared to the preliminary draft:

The new regime as well as the correction related to the (partial) professional withholding tax exemption regime to determine the investment deduction basis would be applicable for investments made as of 1 January 2025.
The increased “thematic” investment deduction would not be applicable by companies in difficulty or by a company for which a recovery order is outstanding following a decision of the Commission declaring aid granted by Belgium unlawful and incompatible with the internal market.
Moreover, the increased thematic deduction could only be applied to fixed assets for which no regional aid is requested (exceptions to be determined by the King).

On 22 March 2024, a number of amendments were proposed with regard to the draft law containing various tax provisions (which includes the proposed changes to the investment deduction regime), including a number of amendments in relation to the innovation income deduction (“IID”) regime. According to the draft law, taxpayers would have the option not to offset part or the full amount of IID (both the IID of the year itself and the amount carried forward) against the taxable basis but to convert it into a non-refundable tax credit for innovation income. The tax credit for innovation income could be carried forward indefinitely and could be offset against corporate income tax of (one of) the following taxable periods. Taxpayers would have the choice for each taxable period whether or not to apply this tax credit. This option would enter into force as of assessment year 2025. This is particularly relevant in view of the introduction of the GloBE / Pillar 2 rules in Belgium. As a result of this modification proposed by the draft law, companies would have the option to voluntarily increase their current tax, thereby raising their effective tax rate (“ETR”), and subsequently carry forward any remaining unused portion of the IID as a non-refundable credit. If the ETR for a given taxable period would exceed 15%, the tax credit for innovation income could be utilized to reduce the ETR accordingly. Any further questions? Don’t hesitate to reach out to Evi Geerts, Pieter Deré, Tom Wallyn or your regular PwC tax contact.

Exemption of withholding tax for night and shift work, a new measure for variable shifts

Pieter Nobels — 2024-03-28 14:44

On 22 March 2024 (published on 27 March 2024), the Federal government introduced amendments to a draft bill which outline a new transitional measure regarding the withholding tax exemption for night and shift work. This transitional measure, referred to as “variant bis” is in response to the uncertainty that arose after the Constitutional Court opened the door for a very restrictive interpretation of the condition of equally scoped shifts in its ruling of 8 February 2024 (see our previous alert). As a consequence, it became uncertain for the more than 20.000 employers that are currently applying this measure, whether even the slightest variation in the size of a shift, f.e. due to illness or absences, would already lead to the full disqualification of the exemption. To resolve this uncertainty, the new bill introduces a variant “bis” of the initial exemption, which replaces the condition of equally scoped shifts with a proportional correction factor based on the deviation in the shift sizes. In light of the upcoming elections, the measure will apply until the end of 2026, pending a more substantial reform of the withholding exemption regime by the new elected government. Importantly, the new measure will apply retroactively to the income year 2021 and following. For clients that want to have a first idea on whether this new measure has an impact for them, PwC has set up a free quick self-scan assessment that allows clients to understand impact and urgency.

Context

The partial tax exemption for night and shift work was called to life in 2003 to compensate for the gap in workforce costs in the industrial sector in comparison with the surrounding countries. The purpose of the incentive was to avoid relocation of industrial players and enhance the competitiveness of our country for the industrial sector. Since then, the measure has seen both an increase in the percentage of the exemption, which has evolved from 1% in 2003 to the current 22,8% (25% for continuous shifts), as well as an increase in the number of companies applying it. In recent reports, the Court of Audit calculated that the cost of the measure increased from 101 million euro in 2005 to a little under 2 billion euro in 2021. In line with the growing budgetary impact, we have witnessed a similar increase in number of tax inspections on this matter, leading to a progressively more restrictive interpretation of the conditions of this exemption. In particular, one of these conditions requiring that the shifts must perform similar work both in terms of content and scope has been in the spotlight of many of these audits over the past years. The final interpretation on which the authorities landed (until now) is that the qualifying shifts should consist of the same amount of people, with an acceptable deviation of maximum 10% (in some cases up to 15%). In the event of non-compliance with this interpretation, the exemption was mostly disallowed in full by the tax authorities. This was particularly common in organisations that, due to the nature and the daily flow of the work, were depending on varying shifts to adjust to peak loads throughout the day, such as in call centers, food processing factories, warehouses, etc. In its recent decision, the Constitutional Court concurred with the view of the authorities, opening the door to an even stricter application. To counter the fall-out of this decision, the Federal government has intervened with a transitional measure, referred to as the “bis” variant. The aim of this measure is to provide more legal certainty to companies currently benefiting from the exemption, but also to mitigate the all-or-nothing effect of the measure in its current form. As a consequence, the transitional regime not only reassures the employers using equally scoped shifts, but re(opens) the opportunity for employers where the scope of work is asymmetrically distributed between consecutive shifts.

The “bis” variant

The transitional regime offers companies the choice between two possible options for the withholding tax exemption: the initial measure for equally scoped shift where the exemption remains applicable in full; or; the “bis” variant, where the equally scoped shift condition is replaced by a proportional correction factor. The new calculation of the exemption will thus be performed in 4 steps:

Calculation of the basic monthly exemption according to the initial rules (i.e. 22,8% on the gross remuneration, assuming all other conditions are met);
Determination of the deviation factor per workday, by comparing the scope of each shift vs. the total scope performed by all the shifts involved;
Calculation of the average deviation factor for the concerned month
Reducing the initial amount calculated in step 1 pro rata with the average deviation factor in step 3.

Example : Let’s take the example of a company working in a 3 shift system with the following variations for one month :

3 shifts with shift A 60 people, shift B 50 and shift C 40 people for the first 10 work days;

3 shifts with shift A 50 people, shift B 55 and shift C 45 people for the following 11 workdays.

Step 1 : for sake of this example, we will assume the basic calculation results in 55.000 € exemption Step 2: Daily deviation :

First 10 workdays : [(60-40)+(50-40)]/(60+50+40) = 30 deviation on 150

Next 11 workdays : [(50-45)+(55-45)]/(50+55+45) = 15 deviation on 150

Step 3: Monthly average deviation: (30+...+30+15+...+15)/(150+150+...+150) = 465/3.150 = 14,76% Step 4: Final exemption amount : 55.000€ x (100%-14,76%) = 46.881 € For completeness sake, it should be noted that all the other conditions for the application of the exemption for shift work remain applicable both to the initial as well as to the “bis” variant. The transitional measure applies to remuneration paid or granted as of income year 2021 up to 31 December, 2026.

Observations

To start with a positive observation, it is fair to say that the legal certainty the new measure brings is welcomed by many organisations and employers in Belgium. Also, the speed with which the Federal government has intervened in reaction to the Constitutional Court decision is quite exceptional. Moreover, the justification note added to the draft bill provides long awaited additional guidance on the interpretation of the initial regime. In this note, the Minister of Finance has clearly indicated that it is not the intention of the legislator to apply the initial regime in its most strict sense. When a company has the intention to organise the work in equally scoped shifts, limited variations that occur due to circumstances such as illness, technical failures, etc, should not give rise to the disqualification of the exemption. An example is provided where there is a deviation of 5% which is disregarded. The shift of focus to the intention of the employer, rather than the mathematical comparison is certainly a positive clarification. Yet one can regret that the author of the justification note used an example with a deviation of 5%, while current audit practice is commonly 10%. The question thus remains what the flexibility will be on the deviation when in spite of the intention of the employer, the tax inspector observes a mathematical deviation beyond this 5 or 10%, even if the deviation is justified by practical circumstances. Furthermore, although the “bis” variant moderates the “all-or-nothing” effect of the initial measure, it does so by descending to the granular level of a workday. The fact that employers will have to determine on a daily basis the deviation factor will likely give rise to a substantial additional workload, with potentially more frequent corrections on the payroll processing and negative withholding tax return. Especially in the context of the temporary work agencies that can equally benefit from this regime when deploying personnel to a company with qualifying shifts, one can imagine the complexity of the process to figure out the exemptions to apply. Finally, it remains uncertain how the retroactive character will be applied by the tax authorities in practice. Although the measure will certainly ease some of the discussions in on-going audits, the question remains whether companies that have already been rectified following a previous audit may also reopen their case.

Conclusion

While the overall evaluation of the new measure is positive, increases legal certainty and opens new opportunities, companies should remain vigilant on the adverse effects that may result from the new regime, such as the higher administrative burden and an unintended reduction on equally scoped shifts due to circumstances. We strongly recommend our clients to proceed with care when opting for the “bis” variant, preceded by a thorough analysis of both context and data to ensure the best route is selected and a sustainable system is put in place. For more insights on partial withholding tax exemptions, fiscal audits and further assistance with the application thereof, please reach out to your regular PwC contact, Pieter Nobels (pieter.nobels@pwc.com) or Pierre Demoulin (pierre.demoulin@pwc.com). For clients that want to have a first idea on whether this new measure has an impact for them, PwC has set up a free quick self-scan assessment that allows clients to understand impact and urgency.

Tax Bites Podcast – Pillar 2 latest state of play & a closer look into Belgium’s implementation

Pieter Deré — 2024-03-25 16:57

In this episode of Tax Bites Podcast, we delve again into the intricate world of Pillar 2, what countries have done so far and we put a spotlight on Belgium's implementation of the new rules. Join us as we dissect the latest updates and explore the nuances of Belgium's implementation of this global tax initiative.

About the speakers

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You can listen to the full episodes via Spotify, Google and Apple Podcasts.

New wave of Belgian transfer pricing audits

Carla Buyens — 2024-03-25 16:29

The Belgian tax authorities have recently initiated a new wave of transfer pricing audits. Many taxpayers have already or will soon receive an in-depth questionnaire requesting bulk taxpayer information in relation to their transfer pricing arrangements. This first request for information on intercompany transactions and the activities carried out by the Belgian company or branch marks the formal beginning of the audit process. In practice, the audit process takes place over several months, even years, depending on the complexity of the topic(s) (challenges in relation to the use of (carried-forward) tax losses might take longer for example). Once a request for information has been received, companies have one month to provide the requested information (typically, a one-month extension of this deadline can be granted but it needs to be requested in due time). The information to be provided in this first round of questions will be extensive and will often exceed what is generally considered essential information for the Belgian tax authorities to validate a taxpayer’s taxable base. Recent experience shows that the questionnaire covers some ‘new’ non-tax topics such as internal audit procedures and ERP systems. Moreover, the requested information frequently aligns with what taxpayers have already disclosed to the Belgian tax authorities as a result of the submission of their transfer pricing documentation such as the Master File (form 275MF) and the Local File (form 275LF). In practice we see that this information is used by the tax authorities to perform risk assessments and can trigger audits. Consistency checks of the filed transfer pricing documentation with statutory figures may be performed and discrepancies will require justification. Experience shows that the initial questionnaire is often followed by a request to share extensive information on the bookkeeping or other data systems. This may often look like a fishing expedition which is in principle not allowed.

Send a timely request for a ‘pre-audit’ meeting to avoid a fishing expedition

We would strongly recommend that you send a timely request for a ‘pre-audit’ meeting prior to sharing any documents or data to ensure the scope of the request and the overall inquiry of the Belgian tax authorities is clear. A more purpose-bound approach can also avoid burdensome processes to extract dumps from data systems. When an audited company is asked for information on other group entities which it does not have at its disposal, there is no obligation to provide this information (although draft legislation containing this obligation is in the pipeline) and no sanction can be applied. The Belgian tax authorities can rely on international legal instruments to request such information from foreign tax authorities. In practice we also see more coordination between the tax authorities of different territories and this will likely increase since DAC 7 enhanced international cooperation (see also PwC Legal’s previous newsflash regarding the implementation of DAC 7). Since the 2022 tax reform, the tax authorities have been able to approach the judge to request that they apply a penalty payment in the event that the taxpayer does not cooperate with the tax audit. It is therefore important to explicitly agree on which information will be provided to avoid the application of this measure.

Key takeaways

Regular risk assessments on submitted information: Companies are mostly selected on the basis of data-mining carried out by the Belgian tax authorities, using for example the filed TP documentation. Elements such as fluctuating or deviating profit margins, absence of TP documentation, absence of any underlying contracts, recent DAC6 filings, restructurings or a structurally loss-making activity make a transfer pricing investigation more likely. In this respect, we would recommend that you perform risk assessments on the basis of the documents shared with the Belgian tax authorities to mitigate potential risks effectively.
Avoid ex post documentation: Appropriate supporting documentation should be drafted prior to a transaction taking place. Avoid relying on ex post documentation whenever possible.
Keep a record of all relevant documentation: Although the current legal retention period for documents is 10 years, in some scenarios we would recommend that you retain documentation for an even longer period of time. For example, in the case of (carried-forward) tax losses or tax exempted provisions, taxpayers should always be able to substantiate the origin of the losses in the assessment year the losses are being used or how the conditions for the application of the exemption are fulfilled. A well-developed documentation system is key in these cases and must be updated according to changing legislation. Also in the event of changes in ERP systems, there must be a way to consult the data during this period.

How PwC can assist

PwC and PwC Legal have worked together in close collaboration on numerous tax audits and have developed a well-defined approach to help your company to reply appropriately to requests for information, whilst preserving your rights as a taxpayer. We are more than happy to assist you in the event of a tax audit and/or to prepare solid documentation/a defence file to serve as a starting point when addressing questions raised by Belgian tax authorities. We can also organise workshops on this topic to help you efficiently prepare for and proactively manage a tax audit. Feel free to reach out to Carla Buyens or your designated contact person in the event of a transfer pricing audit.

Belgian draft law amending the law introducing a minimum tax for multinational companies

Pieter Deré — 2024-03-22 14:01

On 6 March 2024, the Belgian government submitted a draft law to parliament, which is intended to amend the law of 19 December 2023 on the introduction of a minimum tax for multinational companies and large domestic groups. If the draft law is approved, it would be applicable to financial years starting on or after 31 December 2023. The main objective of the draft law is to implement the additional Administrative Guidance published by the OECD in July and December 2023, as this is not yet reflected in the law of 19 December 2023. Please also refer to the global policy alerts which summarise the respective sets of guidance (July - December). Key changes introduced by the draft law:

The definition of Qualified Refundable Tax Credits has been extended to include Marketable Transferable Tax Credits. This category includes credits that can be sold to third parties instead of receiving a refund from the government.
A provision to allow NME Groups to elect to include dividends related to Portfolio Shareholdings (where the ultimate parent entity (UPE) holds less than 10% of the Ownership Interests in the other Constituent Entity).
A provision for a QDMTT Safe Harbour. The safe harbour, when applicable, eliminates the need for an MNE Group to undertake a second calculation under the GloBE Rules after completing the QDMTT calculation.
The introduction of simplified calculations for Non-material Constituent Entities, which provide for an alternative method to determine GloBE Income or Loss, GloBE Revenue and Adjusted Covered Taxes of Constituent Entities.
The implementation of the UTPR Safe Harbour. This is designed to provide transitional relief from the UTPR in the UPE jurisdiction during the first two years in which the GloBE Rules come into effect.
Clarification regarding the treatment of hybrid arbitrage arrangements under the Transitional CbCR Safe Harbour that arise from differences in the source of financial information or differences between tax and financial accounting treatment. It is important to note that there is no need for an actual hybrid instrument or arrangement. In summary, the CbCR Safe Harbour will not be available to the extent that inconsistent treatment of a Hybrid Arbitrage Arrangement (if entered into after 18 December 2023) would otherwise result in a jurisdiction qualifying for the CbCR Safe Harbour.
Additional guidance on the allocation of Blended CFC Taxes (GILTI).

Parliamentary question regarding the disclosure requirements

In line with the OECD Model Rules on Pillar 2, all deferred tax assets and liabilities that are reflected or disclosed in the financial accounts of the Constituent Entities for a Transition Year may be taken into account in a GloBE ETR calculation. However, there is still some uncertainty about the ‘reflected or disclosed’ requirement. Therefore, the Belgian Minister of Finance clarified this point in a reply to a parliamentary question. In his reply, he stated that it is sufficient that the total amount of deferred tax assets and liabilities is included in the Consolidated Financial Statements, provided that a more detailed overview for each separate Constituent Entity is available and can be provided in the event of a tax audit.

Let’s connect!

Are you wondering what the potential (cash tax) impact might be for you? Why not reach out to your regular PwC contact, or contact Pieter Deré or Evi Geerts.

Contacts:

Pieter Deré Evi Geerts

VAT rate of 6% remains applicable for demolition-reconstruction residential projects for the letting market

Lionel Wielemans — 2024-03-21 14:07

In late 2023, the government significantly reduced the ability to apply the reduced VAT rate of 6% to demolition-reconstruction housing projects by limiting the benefit of the reduced rate to projects undertaken by individuals, except when leasing to a social housing agency. This had caused significant concern in the already financially pressured sector. As a result, numerous residential development projects were halted due to lack of profitability.

The Minister of Finance has partially reversed this decision. Specifically, the 6% VAT rate will remain applicable to demolition-reconstruction housing projects that are leased out.

The conditions for this reduced rate remain as they were previously: a maximum surface area of 200 square meters, must be the principal residence, and the property must be leased for at least 15 years to one or more private individuals.

For demolition-reconstruction projects intended for sale, the limitation remains in effect: applicable until the end of 2024 under certain conditions.

This is a welcome measure that will enable the sector to relaunch numerous projects.

Our real estate experts are happy to discuss the impact of this new measure with you.

Dutch article here - French article here

CSDDD Gets the Green Light from the EU Council with Reduced Scope

Alexis De Méyère — 2024-03-15 16:16

As sustainability takes center stage in global policy conversations, there has been an increasing change in how businesses approach their social, environmental, and governance responsibilities. With today's vote in the Committee of Permanent Representatives of the Governments of Member States to the European Union (COREPER), the European Council has de facto given the green light to the Corporate Sustainability Due Diligence Directive (CSDDD). The act is now in line for a final vote in the EU Parliament before its formal adoption. The text voted on today, however, has stripped down the first version of the draft agreed upon by the Council and the EU Parliament during the Trilogue Negotiations last December. Following the Council's refusal to ratify the original agreement last February, with a last minute hesitation from Italy and Germany, the Belgian Presidency moved forward and proposed a new draft that, although significantly narrows the scope of the CSDDD,ensured its adoption by COREPER.

The nature of the CSDDD

The CSDDD requires corporations to identify, prevent, and mitigate the potential adverse impacts of their operations and business relationships on people and the environment. The Directive aims to ensure that businesses adhere to responsible and sustainable practices throughout their entire supply chain. Corporations will be required to conduct due diligence processes to manage the potential and actual adverse impacts on human rights and the environment all along their value chain. Corporations will need to disclose these processes, offering a high level of transparency to stakeholders.

A reduced scope

While the draft agreed upon in December during the Trilogue Negotiations set a threshold of over 500 employees and a net worldwide turnover of more than EUR 150 million (1), the first leaks of the text voted on by COREPER today speak of a substantially reduced scope, including only companies with more than 1,000 employees and a turnover above EUR 450 million. Although these figures still require confirmation, some commentators estimate that this would reduce by almost 70% the number of companies affected by the CSDDD compared to the original Trilogue agreement reached in December (2). Regarding the specific requirements and additional regulations for companies, including the intensely debated issue of corporate and directors' civil liability, it is premature to determine whether significant changes have been incorporated into the draft proposed by the Belgian Presidency and adopted today.

Timing

COREPER’s vote today may be considered to be equivalent to a favorable vote from the EU Council. Nevertheless, the text must now secure final endorsement by the European Parliament before its formal adoption and the subsequent publication in the EU Official Journal. Once the Directive takes effect, Member States are anticipated to have a two-year period to implement the requisite regulations and administrative provisions to comply with the Directive's stipulations.

Final remarks

As CSDDD redefines how businesses approach sustainability it can also impact transformation roadmaps. Corporations will need to be more proactive in addressing potential adverse impacts, from labor rights violations to environmental damage, throughout their supply chains. CSDDD also presents an opportunity for businesses to contribute to a sustainable future actively. In embracing these new measures, corporations can build stronger, more resilient supply chains, enhance their reputation, and gain a competitive edge in an increasingly sustainability-focused market. If you want to get more insights in this developing regulatory framework and how it will impact your business, please reach out to the authors or your regular PwC contact.

https://www.consilium.europa.eu/en/press/press-releases/2023/12/14/corporate-sustainability-due-diligence-council-and-parliament-strike-deal-to-protect-environment-and-human-rights/
https://www.euractiv.com/section/economic-governance/news/scope-of-eu-supply-chain-rules-cut-by-70-ahead-of-key-friday-vote/

Contacts:

– This article is made available by PwC for educational purposes only as well as to give you general information and a general understanding of these matters. Any content of this article should not be used as a substitute for competent professional advice.

Advance tax payments: Mind the significant increase of the surcharge

Koen De Grave — 2024-03-07 14:50

A surcharge is due on the final amount of Belgian corporate income tax payable upon assessment in case a company doesn’t settle its Belgian corporate income taxes due by means of timely advance tax payments during the financial year concerned. Please be advised that the global surcharge will be increased to 9% for assessment year 2025, (accounting periods starting as of 1 January 2024) whilst it was 6,75% for previous years. Therefore, it is more than ever advisable to accelerate the timing of the advance tax payments with a view of managing the surcharge. The advance tax payments needed to avoid the surcharge can be made in quarterly instalments entitling the company to a credit, which can be offset against the surcharge. This credit depends on the timing of payment: the sooner the advance tax payment is made, the higher the tax credit. If the total amount of credits exceeds the surcharge, no surcharge is due, but the excess is not further taken into account for the final tax computation. The taxpayer can choose to either have the excess reimbursed by the tax authorities or used as an advance tax payment for the next year. Advance tax payments can be made no later than the 10th day of the fourth, seventh and tenth month of the financial year and the 20th day of the last month of the financial year. Consequently, the respective credits linked to the due dates to make an advance tax payment for a financial year ending on 31 December 2024 read as follows:

12% = payment received by the Belgian tax authorities on 10 April 2024 at the latest
10% = payment received by the Belgian tax authorities on 10 July 2024 at the latest
8% = payment received by the Belgian tax authorities on 10 October 2024 at the latest
6% = payment received by the Belgian tax authorities on 20 December 2024 at the latest

Considering the above, it is highly recommended to consider making an advance tax payment in the first quarter. Such first quarter advance tax payment generates a credit of 12% which means that a company should make less advance tax payments as compared to paying in a later quarter (e.g. the fourth quarter only gives rise to a credit of 6% of the advance tax payment made) in order to avoid a surcharge. When calculating a company’s forecasted taxable basis for assessment year 2025, one should consider special transactions and exceptional events which may occur during the year.

How should you make the first advance tax payment?

Please note that there are now two options for proceeding to the payment of a first advance tax payment:

Via bank transfer on the bank account of the Belgian tax authorities IBAN BE61 6792 0022 9117 (BIC: PCHQ BEBB). The payment procedure, including the structured communication to be used, remains the same as in prior years (even in case of a first advance tax payment);

Also MyMinfin offers the possibility to generate a wire transfer with the required reference.

Finally it may however be important to note that in order to request for a refund, to request for a transfer of advance tax payments to a subsequent assessment year or to have an overview of the advance tax payments made in relation to a specific assessment year, the taxpayer needs to access a specific module on the MyMinfin platform (which requires a Belgian e-ID or a specific login tool like ‘Itsme’).

Note: Pillar 2 advance tax payments

As you probably already know, Belgium approved on 14 December 2023 the final law introducing a minimum tax for multinational companies and large domestic groups (‘Pillar 2 law’). The law includes a coordinated system of rules designed to ensure that large (domestic/MNE) groups with a consolidated revenue exceeding EUR 750 million for at least two of the four previous years, are subject to a minimum effective tax rate of 15%. In the Pillar 2 law, Belgium introduces a domestic minimum top up tax ((Q)DMTT) and includes Pillar 2 in the existing tax prepayment schedule. As a result of this, companies in scope of Pillar 2 will be required to consider advance tax payments specifically for Pillar 2. The system of advance tax payments which is already applicable for the Belgian corporate income tax wil, to a certain extent, also apply to the new minimum effective tax. In the event that no advance tax payments would be made, an increase of 9% would thus be due on the new minimum effective tax due for assessment year 2025. However, specifically for assessment year 2025, a tolerance is provided on the basis of which all advance tax payments will be deemed to have been made during the first quarter (i.e. a credit of 12% will be applied on the amounts paid) for all payments made before 20 December 2024. Consequently, the credit linked to the due dates to make an advance tax payment for a financial year ending on 31 March 2025 are as follows:

12% = payment received by the Belgian tax authorities on 20 December 2024 at the latest;
8% = payment received by the Belgian tax authorities on 10 January 2025 at the latest;
6% = payment received by the Belgian tax authorities on 20 March 2025 at the latest.

How can we help?

Our experts are ready to assist you in:

Computing and optimizing the advance tax payments to be made for assessment year 2025 in relation to Belgian corporate income tax; and/or
Providing further guidance on how to access/use the specific module on the MyMinFin platform, and/or

Providing further information on the application of the minimum effective tax rate of 15% and the calculation thereof in order to compute and optimize the advance tax payments to be made in relation to the 15% minimum effective tax rate.

Please feel free to contact your regular contact person to discuss the above. He/she will be happy to support you or refer you to one of our specialists if needed. Contacts: Tim Pieters - Karl Struyf – Koen De Grave for Pillar 2.

Holding companies – VAT deduction methodology – Reporting obligations

Lionel Wielemans — 2024-02-28 15:30

Introduction

By the end of June 2023, companies applying the real use VAT deduction method (cost allocation) for mixed taxable persons had to notify it to the Belgian VAT authorities. Now these companies also have to communicate a whole set of information to back-up this VAT deduction methodology.

For VAT taxable persons that already applied real use VAT deduction method before 2023	Option in form 604B before June 2023 (Is it done ?) > In the VAT return of the first quarter on 20 April 2024 at the latest for quarterly VAT taxable persons > In the VAT return of May on 20 June 2024 at the latest for monthly VAT taxable persons
For VAT taxable persons that applied real use method as of 2023	Option in form 604A/B > In the VAT return of the first quarter on 20 April 2024 at the latest for quarterly VAT taxable persons > In the VAT return of one of the first three month of 2024, for monthly VAT taxable persons at the latest on 20 April 2024

Which information to communicate

Furthermore, it is important to mention that mixed VAT taxable persons applying the general prorata as VAT deduction methodology will also need to notify the Belgian VAT authorities before 1st of July 2024 (ie. these companies will also have to communicate some information in this respect). The VAT authorities specifically mentioned that the VAT deduction methodology applied by mixed taxable persons will be under more scrutiny. This will be facilitated by the fact that they now have a centralised database containing the VAT deduction applied by all companies using the real use method/general prorata. This will enable the VAT authorities to carry out audits more efficiently and in a more targeted manner. Many holding companies deduct VAT on the basis of real use method, so they will be directly affected by the new measure and should be prepared for it. Here are some common errors that we see:

Is the VAT deduction method applied correctly and is it updated and reviewed annually?

Has the VAT deduction methodology changed as a result of a change of activity, reorganisation or control?
Is the VAT deduction methodology still defendable or are there any weaknesses?

We are available to discuss this and to help you comply with these obligations.

Lionel Wielemans, PwC Director (+32 477 698479)
Quentin Motteu, PwC Sr. Manager (+32 499 776347)

It’s a wrap! CBAM Roundtables at our PwC Liege, Antwerp and Brussels Campuses on the topic of ‘CBAM: Transitional period – Lessons learnt from the first reporting’.

Webmaster Webmaster — 2024-02-22 16:17

The events were attended by our clients and companies in scope of CBAM, the industry’s federation members, the officials from the Belgian Customs Authority as well as the members from the National Competent Authority for CBAM in Belgium, the FPS Public Health. We thank all the participants for their valuable insights and sharing their experiences with CBAM compliance, testimonials and feedback on the CBM reporting and the active participation for suggestions for improvements. Some of the key observations from our session included:

Most of the participants are struggling with their supply chains to ensure their suppliers are collaborative on sharing the actual carbon footprint of the imported products.
Overview and access to import data remains a key challenge for most companies.
Most of the participants submitted their CBAM report based on manual entries using the EU Commission’s Default Values for the GHG data.
Access to the CBAM Registry was, by far, the most popular issue faced by the reporters until the last minute.

Some of the key takeaways for future reports and dealing with CBAM included:

Ensuing effective communication with the 3rd country suppliers to request for the mandatory CBAM data fields for CBAM reporting.
Need for automation in import data and GHG data consolidation.
Consolidating carbon footprint and supply chain traceability data from the CBAM exercise with other environmental regulations and due diligence reporting for effective data management and re-use.
Fitting CBAM in the imported goods’ procurement strategy.
Ensuring traceability in the supply chain is a key concern and question mark for many companies.
Possible inclusion of more goods from 2026 is foreseen, so companies need to stay updated on the regulation’s constant evolutions.
The authorities are checking for unsubmitted reports and companies can expect to be notified if they failed to report for Q4 of 2023.
It is important to update the CBAM registry with company’s contact details (email address) to ensure the authorities can do effective correspondence with the reporters on the status and feedback of their report.

Besides these, we collected some valuable feedback and questions for the CBAM authorities from our clients. For more on this, stay tuned to our future posts! Based on our collective findings from the session, we highly suggest companies in scope of EU CBAM to already start preparing for reporting based on actual GHG data with their suppliers and overseeing traceability and optimisation in their supply chains. Our PwC Global Trade and Customs Advisors, CBAM experts and ESG & Sustainability data specialists are here to help should you have any questions on the CBAM challenge, and making CBAM a broader part of your Sustainability initiatives and compliance. Please reach out and we are happy to help!

Contacts:

Stock options granted by a Personal Service Company to its company director – not always tax deductible for the company

Bart Van Den Bussche — 2024-02-22 15:35

In a judgement of 5 December 2023, the Court of appeal of Antwerp ruled on a case regarding the deductibility of costs of stock options and upholds the lower court's decision, confirming that remunerations (stock options income in this case) may not always be treated as deductible expenses. The dispute in this case revolves around the deductibility of costs incurred by the plaintiff in relation to a stock option plan and whether they meet the finality requirement as provided in Article 49 of the Belgian Income Tax Code (ITC). The plaintiff argues that they have met the conditions of Article 49 of ITC. They point out that their director is the only person who performs services for the company and that the allocation of stock options was mentioned in the minutes of the general meeting of the company. They also argue that their director has performed additional work outside of their regular medical activities. The defendant, on the other hand, argues that the plaintiff has not provided any evidence that the costs related to the stock options correspond to actual services rendered. They claim that no positive and verifiable documents have been presented to demonstrate that the costs incurred by the company for granting stock options to its director are intended to obtain or maintain taxable income. The defendant emphasizes that the burden of proof lies with the plaintiff. According to Article 49 of the Belgian Income Tax Code, only expenses incurred to obtain or maintain taxable income are deductible. The intention to obtain or maintain taxable income is sufficient, and the actual impact of the expense on obtaining or maintaining taxable income is not relevant. However, the plaintiff must demonstrate that the costs are related to actual services rendered. The court finds that the plaintiff has not provided evidence that actual services were performed by the director in exchange for the stock options. The mention of the stock options in the minutes of the general meeting does not prove that the costs were specifically incurred as compensation for services rendered by the director. The court also notes that any additional services performed by the director for another hospital are not relevant to the income received by the plaintiff. The court concludes that the costs related to the stock options are not deductible and upholds the lower court's decision. Based on this court decision, one can conclude that remunerations in cash or in kind paid by a personal service company to its company director in addition to the existing remunerations may only be deductible as per article 49 of the ITC if it can be documented that these additional remunerations were awarded in consideration of services intended to obtain or maintain taxable income at the level of the personal service company. So, remunerations may not be deemed being always treated as deductible expenses. If you have any questions regarding this topic, don’t hesitate to reach out; we’d love to hear from you.

Contacts:

OECD Published Guidance on Amount B

Isabel Verlinden — 2024-02-21 15:59

On 19 February 2024, the OECD published a report which aims to simplify and streamline the application of the arm's length principle to in-country baseline marketing and distribution activities (the Report) (also known as Amount B under Pillar One). The first draft guidance and call for input dates back from late 2020. Quite some time has lapsed since then which shows that considerable effort went into the project so far by the OECD. The guidance targets all companies and particularly accommodates the needs of low-capacity jurisdictions (LCJ). A list of LCJ will be developed by 31 March 2024. Amount B is considered to serve as a fair approximation of an arm’s length outcome. Together with the Report, the OECD published a reader’s guide. The Report will be inserted as an annex to Chapter IV (Administrative approaches to avoiding and resolving transfer pricing disputes) of the OECD Transfer Pricing Guidelines (OECD TPG) and is rooted in Chapters I-III of said guidance. The Report creates the possibility that the arm’s length result for baseline marketing and distribution is determined on the basis of a fixed return, drawing from the general principles of the OECD TPG and taking into account the industry grouping to which the taxpayer belongs and based on certain quantitative ratios. Important to note already is that if a jurisdiction involved in a transaction does not apply or adhere to Amount B the guidance in the other parts of the OECD TPG takes priority. The Inclusive Framework (IF) is still working on an additional optional (for countries) qualitative scoping criterion. The IF will conclude this work by 31 March 2024. The Report states that its content, including any design elements, should be considered without prejudice to any future work on Amount B, such as on the interdependence of Amount B with the signing and entry into force of the multilateral convention MLC. Amount B can be applied for in-scope transactions for fiscal years commencing on or after 1 January 2025. India made several reservations on the Report, watering down the eventual reach and potential use of the guidance.

In more detail

Amount B is an optional system

Jurisdictions have three options regarding Amount B:

Not introduce Amount B in the legal or administrative system; or
Allow in-scope taxpayers to apply Amount B (safe harbour approach); or
Introduce a mandatory use of Amount B for in-scope taxpayers.

It is not clear from the Report whether in case of the mandatory use of Amount B an in-scope taxpayer has the right to rebut the outcome under Amount B and justify its pricing based on the OECD TPG other than the guidance on Amount B. The Report indicates that IF-Members should respect the outcome of Amount B where it is applied by a LCJ and to take all reasonable steps to relieve potential double taxation that may arise from its application upon condition a bilateral tax treaty is in effect. The list of countries that apply Amount B, as well as countries that can be considered LCJ, will be published on the OECD website.

Amount B applies to certain types of low-risk marketing and distribution activities

Subject to the option that a certain jurisdiction has chosen, Amount B is or can be applied to

Buy-sell marketing and distribution activities for wholesale distribution of tangible goods (hence excluding non-tangible goods, services and commodities) to unrelated parties. De minimis retail sales are allowed if they do not exceed 20% based on the three-year average (see below);
Sales agency and commissionaire transactions,

if such activities can be reliably priced using a one-sided method (TNMM) and the operating expenses fall within a range of 3% and 20% (or 30%, depending on the choice of the jurisdiction) of the annual net revenues of the distributor as the tested party, based on a three year weighted average of the concerned enterprise. When a taxpayer performs both marketing and distribution activities as indicated above as well as other activities that do not qualify for Amount B, such other activities should be appropriately segregated from the qualifying activities. If this is not possible, the taxpayer will not qualify for Amount B hence an implicit call for a proactive assessment by companies of how activities are processed accounting wise.

Amount B starts from the accurate delineation of the transaction, combined with quantitative ratios

The calculations for the scoping ratios are in principle performed on the data of the three prior years immediately preceding the year under analysis. The Amount B mechanism, which is primarily based on the application of a fixed return on sales ratio (ROS) for the year concerned, contains several steps: Step 1: Determine the relevant industry grouping in which the taxpayer belongs; the report identifies three groupings based on wide industry sector categories with a lower, middle or higher profitability. If the products distributed fall into more than one category, the proportion of sales of each grouping should be calculated. If less than 20% of sales fall into a different grouping, only the majority of sales will be considered. Step 2: Determine the relevant factor intensity classification; a) Calculate the accounts payable guardrail - for the purpose of calculating the net operating assets for the relevant years and mitigating the risk of distortive credit terms, an accounts payable days guardrail of max 90 days applies.

(Creditors / cost of goods sold) * 365 ≤ 90

When the accounts payable days exceeds 90 days, the creditors should be adjusted:

(cost of goods sold / 365) * 90

b) Calculate the Net operating assets intensity ratio:

(fixed tangible assets, fixed intangible assets + working capital) to Sales

Working capital = stock + debtors - creditors (possibly adjusted under a))

c) Calculate the Operating expenses to Sales Ratio As the case may be, one should not overlook to consider the possible de minimis test on retail sales (max 20%) as well. Step 3: Determine the ROS from the range from the pricing matrix from the combination of the industry grouping and factor intensity (bandwidth of + 0.5%) Step 4: Determine the operating expense cross check (cap & collar range) which is the return on operating expenses. When the ROS produces a result outside the Operating Cap (varying from 40 - 70% (45 - 80% for LCJ) depending on factor intensity classification ) and Collar range (10%), upward or downward adjustments to the ROS should be made

Return on opex exceeds the cap: downward adjustment of ROS to meet the cap;
Return on opex is below the collar: upward adjustment of ROS to meet the collar

Additional step for LCJ

The ROS as determined above is increased for a net risk adjustment based on the rating of the LCJ.

Review of matrices and data

The data used in determining the matrices mentioned above is based on a global dataset of companies engaged in baseline marketing and distribution and will be reviewed every 5 years unless market conditions necessitate an earlier update. The adjustment based on a modified pricing matrix for jurisdictions that could use their own local dataset (discussed in the Public consultation document on Amount B of Pillar One of 17 July 2023) was left out of the Report.

PwC Belgium developed a specific tool

PwC Belgium developed a specific tool for calculating the appropriate Amount B return. More information on the tool can also be found here.

Documentation

The Report refers to the three tiered approach (master file, local file and country-by-country reporting) discussed in Chapter V OECD TPG. The Report indicates that the local file may be particularly relevant and useful to determine whether the scoping criteria and pricing methodology were followed, such as:

Information on the accurate delineation of the qualifying transaction (including functional analysis of the taxpayer and relevant associated enterprises with respect to the in-scope transactions, and the context in which such transactions take place);
Written contractual arrangements of the in-scope transaction;
Calculations demonstrating the relevant revenue, costs and assets allocated or attributed to the in-scope transaction;
Information and allocation schedules showing how the financial data used in assessing the applicability Amount B and how it ties to the annual financial statements.

Tax certainty, dispute avoidance and resolution

Finally the Report discusses the traditional remedies to avoid or resolve double taxation:

Unilateral remedies under domestic law;
Application of Article 9(2) OECD Model Tax Convention (OECD MTC))
Application of the Mutual Agreement Procedure (MAP) (Article 25 OECD MTC))
Arbitration if provided in the relevant double tax treaty (or by extension other instruments such as the European Arbitration Convention or the dispute resolution directive).

The Report indicates that in a MAP or arbitration procedure, where at least one jurisdiction has opted not to apply or accept Amount B, the competent authorities of the jurisdictions must justify their positions based only on the guidance of the OECD TPG, excluding the guidance on Amount B. Work will be done in 2024 on competent authority agreements on Amount B. Further, the IF Members commit to respect the results under Amount B where it is applied by an LCJ and takes all reasonable steps to relieve double taxation from the Amount B application by an LCJ when there is a double tax treaty in place. Working Party 1 has been charged in that respect to develop the appropriate commentaries to be inserted in the next update of the OECD MTC.However, the limited treaty network that LCJ have could hamper the resolution of double taxation and the conclusion of competent authority agreements.

Takeaways

The aim of Amount B is to create a simplified and streamlined approach for relatively straightforward and low risk marketing and distribution transactions. In principle, a simplified and streamlined approach for such activities should be welcomed. Notwithstanding the efforts put into the project by the OECD so far ,the question is whether the guidance on Amount B reaches the proposed goals. It underscores the challenges to obtain buy-in from a diverse set of countries Taxpayers that are eligible to be in scope of Amount B should be aware of the following.

Chances of Amount B being globally embraced are anything but straightforward. Different jurisdictions may opt for different approaches ranging from the non-application of Amount B to its mandatory use. In case of mismatch between the options chosen by different jurisdictions, Amount B will not be applicable and you must rely on the OECD TPG other than the guidance on Amount B. The Report does not seem to contain a way forward to reach global application (or at least an application as broad as possible) of Amount B.
Actual delineation is key and as the Amount B guidance is fully inspired by the OECD TPG, even a rigorous application of the control over risk framework may not automatically lead to an unambiguous confirmation of the appropriateness of a one-sided method. Examples in the Amount B guidance are regulatory licenses, design and control of marketing programmes etc. This concern will even be amplified should the guidance on qualitative scoping (as expected by the end of March) be overly onerous.
The additional guidance on qualitative scoping is expected to heavily affect the position of countries vis-à-vis the application of Amount B. Even far-reaching is that for example India's buy-in to the Amount B guidance depends on said guidance so the project did not come to a landing yet.
The parallel application of Amount B (possibly a mandatory application in certain jurisdictions) and the other guidance of the OECD TPG in other jurisdictions may lead to double (or multiple) taxation. Double taxation should be resolved through the application of the guidance of the OECD TPG other than the guidance on Amount B. This tie-breaker enhances tax certainty, but at the same time reduces the value of the Amount B approach.
It might be good to consider calculating the arm’s length result both inside and outside the Amount B approach if the in-scope transaction is performed between jurisdictions adopting a different Amount B approach.
While the policy objective of empathizing with the needs of LCJs are understood, the percentages eventually applied (see above on the net risk adjustments) may come across as (overly) generous in particular circumstances and may create an impetus to consider centralized distribution structures by which local presences are avoided. That would go against the policy objective of Amount B altogether.
The double taxation that taxpayers may face may only be resolved when the adequate instruments are in place, i.e. in most cases the existence of a double tax treaty (containing MAP and possible arbitration provisions)if no unilateral relief can be given. Unfortunately, the treaty network of LCJ is currently still less developed than the treaty networks of developed economies. Most treaties with LCJ do not have an arbitration mechanism to resolve any unresolved issues. The risk of unresolved double taxation is hence not reduced.
Finally, the possibility that Amount B leads to a different application in different countries, may have a spill-over effect on other tax issues, for example issues related to Pillar Two (minimum effective tax rate of 15%).

Contacts

Please contact one of the experts below or your usual contact for more information.

New Circular letter on the calculation of the Federal Mobility Budget: pitfalls remain

Pieter Nobels — 2024-02-16 16:02

At the end of September last year, the Belgian government published a Royal Decree to clarify the calculation of the budget for the Federal Mobility Budget and introduce a lump sum calculation method as well. These formulas are to be used both to calculate the available budget as well as the cost to be charged for a so-called “pillar 1” car that the employee disposes of as part of the Federal Mobility Budget. A detailed review can be found in our newsflash of 4 October 2023. With the entry into effect of this Decree on 1 January 2024, the tax authorities have issued on 15 February 2024 a circular letter, Cir. 2024/C/16, to further comment on these new formulas. In this newsflash, we want to highlight a few of the interesting points that are introduced or clarified in the Circular Letter.

1. Lump sum formula - the variable calculation

The lump sum formula consists of a fixed and a variable component. For the variable component, a number of kilometers, taking into account the commuting distance of the individual, is multiplied by the assumed cost per kilometer multiplied by the number of workdays. The cost per kilometer is determined at 30% of the lump sum reimbursement applicable for government officials. For the first three months of the year, this amount is determined to be 0,4269 EUR/km x 30%, i.e. 0,12807. The number of workdays is set to be 200. This is regardless of the teleworking days. Furthermore, it should be noted that the number of kilometers is determined by the commuting distance plus 6.000 km of private travel. This also means that the authorities do not take into account professional travels for this calculation.

2. Actual cost formula

It is emphasized that when using the actual expenses-method, the list of cost-elements mentioned in the Circular Letter and Royal Decree are exhaustive. This means that no other costs can be added. Moreover, the costs mentioned in the Circular Letter can only be taken into account when these costs are (1) not yet included in the lease- / rental contract and (2) mentioned as in the car policy of the employer.

3. Timelines

For the determination of the available budget, the tax authorities hint in their Circular Letter to the fixed character of the budget. It is determined when the employee is opting in to the Federal Mobility Budget and remains unchanged except in case of function change such as promotion. This applies both to the actual cost formula as well as the lump sum formula. We have seen in practice that this strict interpretation is quite difficult to uphold in a situation where de facto, an employee will be able to benefit from a potentially upgraded budget every time the current car lease expires, where the employee with a mobility budget that remains in his function, is stuck with the potentially outdated budget amount for the rest of the career. Furthermore, for the determination of the cost of the pillar 1 car when the lump sum method is applied, changes in the cost of pillar 1 will occur yearly. Be it when the employee moves or when the lump sum kilometer allowance has changed, the impact will only be visible as from the 1 January following this change.

4. Reference car

The tax authorities acknowledge the market practice that companies use a reference car for the determination of the budgets. Interestingly, they foresee this option both for the actual cost as for the lump sum formula. It is not explicitly stated whether the reference can also be used for the determination of the variable part of the lump sum formula. This would be quite illogic as the variable part does not refer at all to a car, but the employee situation in terms of commuting. However, the authorities do mention only two possible option :

Determination of the mobility budget per individual employee (i.e. based on the individual car)
Calculation based on a reference car for the given function category

One could conclude that through this paragraph, the authorities accept that also the variable component could be calculated based on a reference commuting distance for the given function category. Final remark concerning the reference car, the option of using a reference car should be communicated and applied to all eligible employees and choice remains applicable for 3 years.

5. Transitional measures

Interestingly, there are none. The authorities indicate in the Circular Letter that on-going engagements should remain unchanged. As a result, the lump sum calculation for the cost of a pillar 1 car can only be applicable for employees that opt-in to the mobility budget as of 1 January 2024. This obviously does not simplify the administrative burden for employers that need to manage all these co-existing different regimes.

6. Pitfalls

Although one could welcome the attempt for clarification and transparency of the tax authorities, there are still a number of items that in our opinion remain up for improvement. The aforementioned fact that professional travels are not taken into account in the calculation of the budget or the cost of the pillar 1 car in the lump sum calculation method can pose a significant risk for employer and/or employee. Depending on the situation, the employee can end up with a significantly lower budget than previously, or the employer can find himself with a considerably higher cost of the pillar 1 car than he can recover on the employees mobility budget. Furthermore, the individualisation of the budgets in this formula are increasing the complexity of administering the different budgets, which is quite a drawback for many organisations. Also, although less prevalent in this Circular Letter, the fact that the budget is fixed for indefinite period remains difficult to explain to the employees, as it creates potentially an inequality between those with a company car and those with a mobility budget. This certainly may decrease the appetite for employees to opt in to the mobility budget. Finally, it remains uncertain how the reference car should be applied in the two formulas. Although it would make sense to apply also a reference commuting distance for the consumption of the car from a simplification perspective, it does seem to go against the set up of the variable formula. Should you have any questions or want to understand based on simulations what the impact is for your organization, please don’t hesitate to reach out to your PwC-contact or Pieter Nobels / Matthias Vandamme.

Net Zero Industrial Act and the Strategic Technologies for Europe Platform: Forging a Synergy for the European Industry of the Future

Alexis De Méyère — 2024-02-16 09:52

During last week's trilogue negotiations, the EU Commission, the EU Parliament, and the EU Council reached a provisional agreement on the Net Zero Industrial Act (NZIA). This Regulation will form the backbone of the EU's strategy to boost domestic green tech production, known as the Green Deal Industrial Plan. This initiative responds to the global green subsidy war that escalated following the adoption of the Inflation Reduction Act in the US and a surge of public funding into Chinese green tech manufacturing.

The NZIA in a Nutshell

The goal of the NZIA is to achieve (at least) 40% of the production capacity required to cover the EU's needs for green tech products. To reach this goal, the NZIA relies on several measures, including:

the acceleration of permit-granting procedures;
the development of ‘net-zero acceleration valleys’ (i.e. industrial clusters);
a specific framework for green-tech procurement;
new rules for public auctions of renewable energy projects.

These measures will be supported by the mobilisation of existing and newly created public funds, aiming to support investments in so-called “net-zero strategic projects”.

Technologies under Scope

In a significant development, trilogue negotiators have agreed to substantially extend the list of technologies that can be deemed as “strategic net-zero projects”, thereby benefiting from the provisions of the NZIA. Specific attention should be given to the last-minute inclusion of nuclear energy, as well as technologies aimed at reducing the carbon footprint of traditional heavy industries such as aluminum, steel, cement, and chemicals. Additionally, the compromise extends the initial scope of the EC proposal to encompass not only the final products but also their supply chain. A variety of components and specific machinery detailed in an Annex to the NZIA will be eligible to be deemed as “strategic net-zero technologies” (1). Connection with the Strategic Technologies for Europe Platform (STEP) Projects that gain the 'strategic net-zero' status under the NZIA will enjoy numerous benefits, among others facilitated access to funding. Notably, this includes support from the Strategic Technologies for Europe Platform (STEP), which was launched by the European Commision (EC) last June 2023. The aim of STEP is to streamline funding access for companies in deep and digital technologies, biotechnologies, and net-zero technologies. STEP is set to leverage existing funding programmes such as InvestEU, Innovation Fund, Horizon Europe, Recovery and Resilience Facility, and Cohesion policy funds. Additionally, negotiations are ongoing to provide fresh money to the programme. The EC estimates that the combined efforts under STEP may mobilize new investments up to €160 billion (2). Some of the key aspects of STEP include a: Sovereignty Portal: A streamlined one-stop-shop to assist companies and project promoters in finding and applying for STEP-related funding, enhancing the efficiency of investment processes (3). Sovereignty Seal: Awarded to projects aligning with STEP objectives and meeting quality criteria under major EU programs, this seal signifies excellence and strategic alignment with technological advancements (4).

Next Steps

Further details on the text agreed upon during the trilogue negotiations will only be available once the EU publishes the official draft for parliamentary discussion. Nevertheless, it is expected that the Net Zero Industry Act will be translated into actual financing opportunities, thanks to the concurrent deployment of the Strategic Technologies for Europe Platform (STEP). These are undoubtedly interesting times, presenting significant opportunities for companies eager to invest and innovate in the net-zero sectors. If you want to get more insights in this developing regulatory framework, and by extension the possible grants and incentives opportunities for your investment projects, please reach out to Alexis De Méyère (alexis.de.meyere@pwc.com), Tom Wallyn (tom.wallyn@pwc.com), or Bart Wyns (bart.wyns@pwc.com). We are happy to support you every step of the way!

The agreed list of eligible net-zero technologies will be accessible once the final compromise text is published by the EU. Please see https://single-market-economy.ec.europa.eu/industry/sustainability/net-zero-industry-act_en for more information on these components and machinery.
https://ec.europa.eu/commission/presscorner/detail/en/ip_23_3364
https://commission.europa.eu/strategy-and-policy/eu-budget/strategic-technologies-europe-platform/sovereignty-portal_en
https://commission.europa.eu/strategy-and-policy/eu-budget/strategic-technologies-europe-platform/sovereignty-seal_en

Wage withholding tax exemption – Constitutional court has introduced a strict interpretation of the application requirements for the wage withholding tax exemption for shift work

Pieter Nobels — 2024-02-13 10:59

Executive Summary

In a request for preliminary ruling, the Belgian Constitutional Court was asked to rule on the discriminatory character (or not) of one of the conditions to apply the withholding tax exemption for night and shift work. Said condition requires that the shifts perform the same work in terms of content and magnitude of work. In short, the Court judged that the tax regime is not unconstitutional and that the condition is not discriminatory. With this ruling, the Constitutional Court keeps the door open for a very restrictive application of said incentive scheme, potentially putting the application at risk as soon as there is some degree of variation in the activities or the size of the teams working in shifts. Especially in sectors where shifts are based on peak and non-peak hours, the authorities may seek to challenge the applied exemption. The ruling comes at a moment where the government continues to tighten the screws on the withholding tax exemptions, as illustrated by the recently published requirement to embed the required shift premiums in a formal agreement.

Context

Concept of shift work

In brief, the notion of “shift work” is legally defined as followed:

companies where work is carried out in at least two shifts, each consisting of at least two employees;
performing the same work in terms of content and magnitude;
and where these shifts succeed each other throughout the day without any interruption between them, with the overlap not exceeding one-fourth of their daily workload.

The validity of the requirement of 'performing the same work both in terms of content and magnitude’ gives rise to many discussions with the tax authorities in the context of tax audits. The judgment rendered by the Constitutional Court was meant to clarify this notion.

Summary of the Constitutional Court’s judgment

The recent judgment of the Constitutional Court (February 8th, 2024) confirms the legality regarding the strict scope of application for the partial exemption of withholding tax for night and shift work. The Constitutional Court has ruled that a law cannot be considered discriminatory if the difference in treatment is based on an objective criterion, even if the strict interpretation of this criterion de facto leads to the exclusion of certain sectors. The Court has notably judged it is not unreasonable that companies where the content and the magnitude of the work carried out is the same benefit from the tax exemption, whereas companies where the team work varies according to peak and off-peak hours are excluded from the exemption. Idem for companies where the scope of the work is comparable, but not (exactly) the same. The Court notably motivates its judgment by the fact that the intention of the legislator was to reduce the budgetary costs of the tax measure and avoid having companies restructuring their way of working in order to benefit from the regime. As a result of this strict interpretation, not every form - as accepted in the past - of work organization involving shifts is eligible for the exemption anymore.

What does the future hold?

With its latest decision, the Constitutional Court significantly challenges the practical implementation of partial exemption from payment of withholding tax for night and shift work for companies. The particularly strict interpretation of the Court regarding the similar activities different shifts should execute creates an important gap between legislation and the goal of the exemption to boost employment in Belgium. What follows from this judgment is added ambiguity and legal uncertainty for applicants of the measure. This ambiguity and uncertainty is reinforced by the fact that the Court has also judged in a cryptic manner “that the teams must perform the same work as regards its scope cannot be reduced, in the context of such an analysis, to performing the same work by the execution of rigid and routine tasks”. Eventually, it remains to be seen how tax authorities will convert this decision into practice and whether the tax authorities will take further measures regarding all companies with atypical shift work that make use of the exemption. But as illustrated by the recently introduced cumulation limit between night and shift labor and the additional requirements called to life such as embedding of the required shift premiums in the collective labor agreement (CLA) or individual employment contract, as well as adjusting the registrations to distinguish shift and night work, it’s obvious that the authorities are tightening the screws on the application of the withholding tax exemptions. For now, it is important for the applicants of the measure to thoroughly analyze their fiscal situation taking into account the recent case-law and for the companies for whom the tax authorities have decided to launch a tax audit to scrutinize whether other legal arguments (such as procedural arguments) cannot be successfully developed. For more insights on partial withholding tax exemptions, fiscal audits and further assistance with the application thereof, please reach out to your regular PwC contact, Pieter Nobels (pieter.nobels@pwc.com) or Pierre Demoulin (pierre.demoulin@pwc.com).

Harmonising Carbon Pricing in the CBAM Era: EU-Switzerland ETS Linkage

Alexis De Méyère — 2024-02-07 15:37

Recent developments in the Agreement between the EU and Switzerland on linking their Emission Trading Systems reflect an ongoing commitment inside the European Union to aligning carbon pricing strategies across borders, that is now expected to accelerate following the adoption and implementation of the Carbon Border Adjustment Mechanism (CBAM).

The EU Carbon Pricing Strategy

The EU Emission Trading System (EU ETS) was implemented in 2005 and remains the largest international emission trading system in the world, also the backbone of the European carbon pricing strategy to decarbonize its most carbon-intensive sectors: power generation, industry, and aviation. The European Union's decarbonization ambition has intensified with the launch of the EU Green Deal (2020) and the Fit for 55 policy package, aiming to reduce net greenhouse gas emissions by at least 55% by 2030 (1), with ongoing debates to increase EU targets to 90% by 2040. A critical policy instrument of this strategy is the Carbon Border Adjustment Mechanism (CBAM), which prices the carbon emissions of goods imported into the European Union. CBAM is consistent with the objectives of EU carbon neutral targets. CBAM levels the playing field between EU industries, which are subject to the EU ETS and their third country competitors which might not be subjected to any carbon costs in their production countries. CBAM harmonizes the carbon cost gap that is anticipated to widen significantly over the next decade once EU industrial operators will no longer receive public support due to the phase-out of the so-called 'ETS free allocation'. Although CBAM will significantly impact countries that have Europe as a major commercial partner, the policy measure does not apply to non-EU countries participating in the EU ETS, such as Iceland, Liechtenstein, and Norway, or those with a domestic ETS linked to the EU ETS, like Switzerland.

The Linkage between EU ETS and Swiss ETS

The Swiss ETS began in 2008 with a five-year voluntary phase. From 2013, participation became mandatory for large, energy-intensive entities and remained voluntary for medium-sized emitters (2). The Agreement between the EU and Switzerland on linking their Emission Trading Systems (the 'Agreement') entered into force on 1 January 2020 (3). In accordance with the Agreement, the emission allowances of the Swiss ETS became valid for compliance purposes in the EU ETS and vice versa. Therefore, with the physical transfer of emission allowances, the EU-Swiss ETS became the world's first international treaty to link emissions trading systems. There are several criteria considered and defined as ‘essential’ in the Annexes to the Agreement, such as compatibility between the ETSs, equal treatment of participants, and system security. The Agreement also established a Joint Committee, tasked with revising the Annexes and ensuring the integrity and compatibility of the linked systems.

The latest update of the Agreement

On 25 January 2024, Decision No. 1/2023 of the Joint Committee (4) was published in the Official Journal of the European Union, introducing amendments to the Agreement. These amendments are necessary due to the regulatory changes stemming from the new EU ETS trading period that began in January 2021. Specifically, the Decision updates the 'essential criteria' for the linkage as provided in Annex I to the Agreement and clarifies the definition of sensitive information with a high confidentiality and integrity rating for the purposes of the Agreement.

Next Steps

As we witness the strengthening of EU carbon pricing strategy and the broader implications of the CBAM, it is clear that businesses within the EU and in countries closely linked to the EU's Single Market need to reassess their compliance strategies. This is the time for organizations to evaluate how these changes impact their operations and strategic planning. PwC's team of experts is on hand to provide insight and support, helping businesses navigate these developments, ensure compliance, and optimize their strategies in this new era of carbon pricing and environmental accountability.

The 55% reduction in emissions is compared to 1990 levels.
The "Opt-out" allows operators with emissions below 25,000 tonnes of CO2eq per year to apply for exemption from ETS, while the "Opt-in" enables voluntary participation in ETS by small emitters, subject to specific criteria outlined in the Swiss CO2 Ordinance.
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A22017A1207%2801%29
https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ:L_202400301

New ways to carving-out and integrating your business in Belgium not always tax neutral

Nancy De Beule — 2024-02-06 15:02

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

The updated benefit in kind for the private use of a company car – 12 months delay for a significant tax increase?

Pieter Nobels — 2024-02-02 15:49

Executive summary

Due to the acceleration of the electrification of the fleet, employees driving a combustion engine car were faced with an approx. 10% increase of the benefit in kind company car as of 2024.
To mitigate the related tax cost for the individual, the Minister of Finance has announced a change in the calculation method.
However, based on the projections for the new car market for 2024 and without any new changes to the rules, the tax increase will be even more significant in 2025, with estimates ranging to 25% increase of the tax on the benefit in kind.

Context

Traditionally, the Minister of Finance announces towards the end of every calendar year the reference CO2 emission to be used for the calculation of the benefit in kind for the private use of the company car. The idea of this reference value, one for petrol, one for diesel cars, is to have a higher taxation of cars that are more polluting than the average new car, and a lower taxation for cars that are emitting less CO2 than the average new car of the last calendar year. For this, the average is taken from the CO2 emission norm of each newly registered car between October and September of the prior year. In line with the continued greenification of the Belgian company car fleet, we have seen a year-over-year decline of this average. Where the average was still 130 gr/km in 2020, in 2022 this had dropped already to 105 gr/km. As a result, company car drivers have seen the taxes on their car steadily increase in the past years as the difference between their car and reference CO2 emission increases. For example, an employee who would receive a new petrol car in 2021 with a catalogue value of 41.000 EUR and CO2 emission of 143 g/km, would see his monthly taxes increase from approximately 150 EUR per month in 2021 to 159 EUR per month in 2023.

Update for 2024

With the important fiscal changes for non-electric vehicles in mind that entered into force on 1 January 2023 and 1 July 2023, many were anxiously looking to see how this acceleration in the greening of the fleet would impact the monthly benefit in kind. Indeed, due to the first effects of this tax reform, the average CO2 emission of the newly registered vehicles has dropped further to 79 g/km. Although the exact calculation of the two reference values for 2023 was not shared, estimates would land the reference value for petrol (and LPG or CNG) at 62 g/km and for diesel at 50 g/km. In the aforementioned example, our employee would have to pay an additional 14,79 EUR per month for the same car, totalling to 174,73 EUR per month. The Minister of Finance has announced to mitigate the increase in benefit in kind by referring to a different CO2 emission norm than previously used. For income year 2024, the following CO2 emission will be applied to the above taxable benefit in kind:

Petrol, LPG or natural gas cars: 78 g/km (instead of 82 g/km for income year 2023)
Diesel cars: 65 g/km (instead of 67 g/km for income year 2023)

The above reference CO2 emission is effective as of 1 January 2024 and the corresponding benefit in kind should retroactively be processed in the January payrolls. As most January payrolls have been processed in the meantime taking into account the 2023 reference-CO2, a rectification will appear on your February-payslip. As a result, our employee in the example would actually see the monthly tax slightly decreasing with 5,77 EUR (due to the 6% depreciation of the catalogue value) instead of the 14,79 tax increase. In other words, a net difference of 20,56 EUR per month or 246,72 EUR per year!

Safe for 2024, but what about 2025?

Although most employees will probably welcome the intervention of the government, it will only mitigate the damage for this year. Based on the figures of the Belgian car federation Febiac and Mobia, the expected share of full electric cars in the new registered vehicles expected for 2024 will exponentially increase to 60%. If from this base we simulate the estimated average CO2 emission in line with the values of last year, we would land probably a bit below 40 g/km (vs. 78 g/km for 2023). This would bring the reference values to resp. 38 g/km and 31,6 g/km. Provided no changes are made to the legislation, for our employee in the example, this means an estimated increase of his monthly tax on the benefit in kind to 190,64 EUR per month or an increase of almost 25%! (Simulation based on a petrol car with a catalogue value of 41.000 EUR and a CO2 emission of 143 g/km, a fictitious car based on a popular company car model.) This significant increase will also indirectly have an impact for the employers, as part of the benefit in kind is used to determine the tax deduction at corporate level. The above case demonstrates that the mobility landscape has become increasingly complex, with many variables influencing the cost for both employer and employee. Should you have any questions on the above, or would be interested in simulating your fleet cost for the coming years, don’t hesitate to contact your regular PwC contact person or Pieter Nobels / Matthias Vandamme.

CBAM Registry’s Technical Issues: EU Addresses Concerns in Last-Minute Press Release

Alexis De Méyère — 2024-01-30 16:27

The European Commission has taken action regarding the technical issues affecting the submission of data for the EU Carbon Border Adjustment Mechanism (CBAM) and the Import Control System 2 (ICS2). These problems have arisen from a technical fault impacting several EU customs systems, including the CBAM Transitional Registry. In response, systems updates have been made in the past days, but starting 1 February, a new feature in the CBAM Transitional Registry will be made available to reporting declarants who have not been able to submit their first quarterly CBAM report by January 31. This feature allows users to "request delayed submission”, providing an additional 30-day window for the submission of their CBAM reports. Further to this, the Commission has released a formal communication informing that National Competent Authorities (NCAs) are instructed to not to impose penalties on those who have faced submission difficulties. At the same time, the EC takes the opportunity to highlight that, regardless of the reason for non-compliance, the NCAs will not levy penalties before the declarant opens a correction procedure, where they will be allowed to provide justifications and correct any potential inaccuracies in their CBAM report. Nonetheless, reporting declarants who have not encountered significant technical issues are still encouraged to meet the original deadlines, keeping in mind that the first three CBAM reports can be amended until 31 July 2024. In light of these developments, our team of PwC Belgium CBAM experts remains committed to supporting our clients in navigating these changes and ensuring compliance with CBAM requirements. Our Global Trade and Customs Advisory and CBAM and decarbonisation experts are available to provide guidance and support to EU importers of CBAM goods, helping them to meet their reporting obligations and avoid any potential penalties.

End of the “old” special tax regime for expatriates: key changes starting January 2024

Aurore Zadeling — 2024-01-30 15:47

As of January 2024, the special tax regime applicable to certain expatriates in Belgium under the administrative tolerance (i.e. Circulaire n°Ci.RH.624/325.294 dd august 08.1983) has come to an end. If you are an expatriate who was in scope of the ‘old’ special tax regime until the end of December 2023, it is crucial to understand the implications and ensure compliance with your new tax obligations.

Tax status and reporting obligations

The benefits of the ‘old’ regime have ceased, and - unless you can demonstrate that your tax residency is located outside of Belgium - you have now transitioned from an expat (non-resident for personal income tax purposes) status to a resident status in Belgium. This means that your worldwide income must be reported and taxed in Belgium, with the possibility of claiming exemptions based on tax treaties. The deadline for filing a Belgian resident tax return is earlier compared to non-resident tax returns. Paper filings are due by 30 June, while electronic filings are due by 15 July. However, certain situations, such as electronic filing and receiving director fees or profits, extend the deadline until 16 October.

Disclosure and specific reporting obligations of foreign assets

Belgian residents have separate reporting requirements for foreign assets, a.o.:

Foreign bank accounts should be reported to the Belgian national bank. Furthermore, these should also be disclosed in the annual resident tax return.
Policyholders of an individual life insurance contract obtained from a foreign insurance company are required to mention it in their annual resident tax return.
The acquisition and sale of a real estate abroad should be spontaneously reported to the authorities within 4 months of the transaction. If a non-resident taxpayer becomes a resident taxpayer, the deadline is reduced to 30 days following the first day of the taxable period. Furthermore, the (deemed or effective) immovable income should be reported in the annual resident tax return, with the possibility of claiming an exemption based on the relevant tax treaty.
Under the so-called Cayman tax, the (Belgian resident) settlor or founder of a vehicle qualifying as a “legal construction” is required to disclose information regarding the legal construction in the annual resident tax return and potentially to report income by virtue of the look-through principle. Note that this regime has been recently modified by law, expanding its scope. We therefore strongly advise to seek assistance if you have any interest in entities that may qualify as "legal constructions" given the potential reporting and (look-through) tax implications.

Taxation on your investments

Belgian tax resident individual investors should be aware of the various rules and taxes that may apply to income generated from their investments. These include a.o. tax transparency rules, the Belgian tax on savings income (i.e. reclassification of certain capital gains as interest), the tax on stock exchange transactions, and the tax on securities accounts. It is important to note that as an investor, you bear the ultimate responsibility for declaring and paying the applicable taxes.

Key points to consider

As a resident taxpayer, there are many compliance aspects to take into account, including various declarations with their own forms and specific deadlines. It is crucial to ensure proper compliance with the tax requirements to avoid fines and sanctions. Whether you need assistance understanding the tax implications of transitioning to a resident status, ensuring compliance with reporting obligations, or verifying the tax treatment of your assets and investments, we are here to provide the assistance you need.

Arm’s length character of interest rates on intercompany loans

David Ledure — 2024-01-26 15:02

In recent years, the Belgian Tax Authorities (BTA) have intensified their focus on the (intercompany) financing arrangements of MNE groups. Some recent Belgian case laws offer valuable insights into the approach that the BTA and the Courts adopt when assessing the arm’s length character of intercompany financing conditions. Stay informed and adapt strategically!

Judgment of the court of first instance in Leuven dated 26 August 2022 [Link]

Facts

The BTA contested the interest rate applied to two shareholder loans (mezzanine financing- convertible into capital) provided by the shareholder to a Belgian entity in 2016 for funding the acquisition of a stake in a related entity. The contention was that the applied interest rate was deemed excessive and not at arm's length.
The taxpayer substantiated during the tax audit the arm's length character of the applied interest rate by using an internal Comparable Uncontrolled Price (CUP) method. Firstly, by citing the comparability of a third-party offer during the 2016 loan issuance, integral to the commercial negotiations for related company’s acquisition. Secondly, underscoring the comparability of a third-party offer received in 2021 to refinance the original shareholder loans.
The BTA rejected both used internal CUPs based on the following arguments (accepted by the court):
- The first offer was not made by an independent party since the offer was integral to a broader framework of commercial negotiations to acquire a related company.
- The second third party-offer was found not comparable considering i) the group's structure and scale underwent significant changes ii) BTAs high-level debt capacity and credit risk analyses revealed a substantial decline in the shareholder's creditworthiness from 2016 to 2021 which deemed to have a material impact on the interest rate.
The BTA substantiated their position through a corroborative approach, conducting two benchmark studies- an internal CUP with an external bank loan (adjusted for comparability) and an external CUP. Additionally, they effectively challenged the accurate delineation of the transactions as mezzanine loans.

This judgment underlines the importance of accurate delineation and the sufficient substantiation of the arm’s length character of loans. The BTA and the court place a strong emphasis on accurate delineation, meticulously assessing whether the conditions of controlled transactions align with those of uncontrolled transactions under similar circumstances.

Judgment of the Dutch-speaking court of first instance in Brussels dated 20 July 2023 [Link]

Facts

In this case the BTA challenges the arm’s length character of the applicable interest rate on a loan provided to a Belgian entity. More specifically, the assumed stand- alone credit rating of the Belgian entity and the impact thereon of group membership (so called ‘passive association’ or ‘implicit support’) scrutinized.
For the determination of the interest rate, the group's transfer pricing policy and the loan agreement refer to the corporate rating as applied by the rating agency Standard & Poor’s (the 'S&P method').
- This method determines a borrower's stand-alone credit rating using a comprehensive scorecard that integrates both qualitative (business risk) and quantitative (financial risk) elements.
- The stand- alone credit rating is assessed based on the S&P methode and consequently notched up based on S&P’s passive association.
At the heart of this dispute is the deviation of S&P’s methodology as implemented by the Group. More specifically, not all qualitative elements from the S&P method were considered by the taxpayer. Additionally, the BTA asserted that the analysis outcome was materially impacted by the entity’s elevated indebtedness, which stemmed directly from substantial intercompany debt incurring high interest costs.

This judgment underlines the importance of a transparent and a comprehensive credit rating analysis, where the chosen method is correctly applied. Additionally, attention should be paid to the properly support the intercompany debt quantum to ensure it does not weaken the credit rating assessment and subsequent interest rate applied.

Key takeaways and considerations

It is highly recommended to prepare transfer pricing documentation before engaging in an intercompany financing arrangement, as substantiating the arm’s length nature ex post could be more challenging.
In determining the arm's length character of an intercompany financing arrangement, it is crucial to emphase accurate delineation, meticulously assessing whether the conditions of controlled transactions align with those of uncontrolled transactions under similar circumstances.
When determining a relevant credit rating, it is recommended to adhere to the chosen credit rating methodology. Unjustified deviations from the methodology may arouse suspicion from tax authorities. It is therefore recommended to document and accurately analyse the credit rating assessment by following all steps and necessary qualitative and quantitative criteria.
Have a critical look at the potential impact of an intragroup leverage and interest rate on the credit rating outcome. In case the credit rating analysis is dependent on financial parameters such as leverage ratio, it should be assessed whether the results of the quantitative credit rating analysis is adversely impacted by the level of intercompany debt and interest expense. A robust debt capacity will help in supporting the debt leverage of the borrowing entity.

Charging the company car at home – new clarification on the tax treatment of the cost reimbursements

Pieter Nobels — 2024-01-23 14:54

Introduction

The shift to electric cars has proven to bring its share of challenges for HR and fleet managers responsible for a Belgian company car fleet, as many new practical considerations arise compared to the context of a “classic” combustion engine car fleet. But also for tax professionals, this still relatively new concept has raised a number of tax questions to be resolved. For example, one of the unique characteristics of electric cars is the possibility to “refuel” your car at home. Especially in the context of a company provided car, where the employee charges the company car at home, the question arose how these costs, both infrastructural and consumption, could be borne by the employer. In previous communications, the tax authorities had already clarified:

Charging stations at home can be paid by the employer without additional tax benefits (subject to certain conditions)
The electricity costs from charging at home with a charging station owned by the employer, can be reimbursed by the employer to the employee without additional tax due (subject to certain conditions)

However, due to a restrictive interpretation by some parties, there was still some doubt around the reporting obligations for these reimbursements and the tax treatment of reimbursements for electricity costs for charging through a privately owned charging station. In a recent parliamentary question (NL/FR), the Minister has provided a response to some of these questions.

The principle : administrative tolerance - one single BIK to cover it all

First of all, the Minister of Finance has reiterated the overarching principle of the home charging costs, whether they are infrastructural (f.e. charging stations) or related to electricity consumption. Provided it can be demonstrated that these costs, borne by the employer based on the company’s policy, pertain to the car that is provided by the employer, these costs are presumed to be included in the value of the taxable benefit in kind for the company car. Furthermore, the Minister has highlighted a few consequences with regards to the reporting obligations of these reimbursements:

The costs do not need to be reported separately on a salary form or tax return as they are presumed to be included in the already reported benefit in kind.
The costs follow, for the employer, the same corporate tax treatment as the amount of the benefit in kind reported in hands of the employee and are thus not subject to the tax deduction restrictions on other car-related costs.

The conditions : verified but not owned by the employer

As mentioned in our introduction, there was some confusion in the market due to a strict interpretation of the previous communications of the tax authorities. Indeed, the impression was created that in order for the reimbursement of electricity consumption costs for home charging to be exempt from tax, the charging should be done through a charging station owned by the employer (but installed at the home of the employee). In the parliamentary question at hand, the Minister has now explicitly clarified that the ownership by the employer is not a specific condition for the exemption. He reiterates that regardless of the ownership of the charging station, the costs are tax-exempt, if the following conditions are met:

The employer provides the electric/plug-in hybrid company car;
The employer’s car policy must provide for reimbursement of electricity charged with the charging station;
The charging station must have a specific communication system allowing the employer to know the quantity of electricity consumed;
The reimbursement only concerns the electricity charged for the electric/plug-in hybrid company car provided, i.e. a form of identification system is recommended;
Reimbursement by the employer must be the actual cost of the electricity.

In practice : a small step forward

It goes without saying that the current communication will be welcomed by many fleet and HR managers that were previously struggling with private charging stations, charging stations from previous employers, end of life charge stations, etc. However, we recommend employers to remain vigilant when accepting the reimbursement of charging costs through private charging stations. The Minister has been very explicit about the verifiable character of the expense information. It is therefore strongly recommended to do an upfront check of the employee’s private home charging system to substantiate:

The electric consumptions is communicated based on source information;
A system is in place to identify that it is the company car that is charged, or to exclude charging of other vehicles.

Especially the latter condition may prove to be technically quite challenging. Likely, a combination of checks and technical solutions will need to provide sufficient certainty to uphold verifiability during a tax audit. Finally, many will regret that the current communication does not bring any clarification on the calculation method of the reimbursable costs, as the Minister merely continues to refer to the “actual” costs. The question thus remains whether the common practice of referring for the calculation to the average electricity tariff as published by the Belgian energy market regulator CREG will withstand this definition of actual costs. One can only hope that the Minister of Finance will continue to provide clarity on these topics, taking into consideration the practical implications and not driving employers into the administrative nightmare of figuring out the precise private tariff of each and every concerned employee. Should you be interested or would like to have more information on this topic, don’t hesitate to reach out to Pieter Nobels or Matthias Vandamme.

Deadline for first DAC7 reporting now imminent

Pieter Deré — 2024-01-19 15:12

DAC 7 recap

In previous alerts we informed you that the DAC7 reporting obligation impacts various digital platforms operators. The scope of this obligation relates in a broad sense to platforms (any software, including a website, application, and so forth) that facilitate, directly or indirectly, the connection between sellers and buyers for the carrying out of a relevant activity such as rental of immovable property, personal services, sale of goods, and rental of any mode of transport. The DAC7’s reach is not limited to the European Union, but extends to numerous platforms and companies established outside the EU as well. For instance, platform operators established in a non-EU country that facilitate the rental of immovable property located in an EU member state can fall in scope of the DAC7 reporting obligation. The same applies to non-EU platform operators with sellers resident in the EU, selling goods or providing services via the platform.

Upcoming deadline - January 31, 2024

The DAC 7 reporting obligation is already in effect, and with the approaching deadline, platform operators must act promptly. The required due diligence on the information collected from sellers onboarded during the calendar year 2023 should have concluded by December 31st, 2023. For the sellers onboarded on the platform before 2023, platform operators have an additional year to comply with the due diligence obligation. After completing their due diligence, platform operators are required to comply with the reporting obligation no later than January 31st of the calendar year following the reporting period. This means 31 January 2024 for the information of the reporting period 2023. This leaves qualifying platform operators currently with less than 2 weeks to meet the upcoming reporting deadline of January 31, 2024.

Penalties for non-compliance

The Belgian implementing legislation outlines specific sanctions for non-compliance with the reporting obligations. Non-EU platform operators failing to register may be subject to a fine of €25,000. If such platforms persist in their activities on Belgian territory after their registration has been revoked by the competent authority, a fine of €50,000 will be applicable. In the worst case, the platform operator may face a ban on providing services in Belgium. Penalties for providing incomplete information vary from €1,250 to €12,500. For such violations committed with fraudulent intent or with the intent to harm, fines ranging from €2,500 to €25,000 are applicable. For non-submission or late submission of information, fines ranging from €2,500 to €25,000 can be imposed, €5,000 to €50,000 if there is fraudulent intent.

Key takeaways

Any company with a website or app that allows third parties to connect potentially may be in scope of DAC7.
The first reporting deadline is due for January 31, 2024, reporting on calendar year 2023.
Non, incomplete or late submission could lead to fines ranging from € 1,250 to € 25,000.

How we can assist

The Belgian tax authorities have made an XML conversion tool available for converting manual inputs of the provided fields into an XML file for the DAC 7 filing via the MyMinfin platform. Completing the information manually in the XML conversion tool could however be a burdensome and time consuming task.
We can advise you on the technical aspects and administrative guidance in this respect. If you require our assistance, we are pleased to propose our tool to efficiently compile the required data and perform the required conversion.

Contact your PwC trusted advisor: Pieter Deré, Karl Struyf, Inge Meynen, Jeroen Aerts

Navigating the evolving “De Minimis Regulation”: recent changes and future expectations

Tom Wallyn — 2024-01-18 16:25

In the dynamic landscape of state aid, the De Minimis regulation has been put in place to ensure a fair competition between enterprises across the European Union. However, significant updates to the regulation have recently been made. Looking at the future, such changes promise to reshape how companies navigate this important aspect of state aid. With this article, an overview of the regulation has been made.

What is considered as state aid ?

State aid concerns various forms of assistance or support provided by governments or public authorities using state resources. Ranging from direct grants and subsidies to tax advantages and loan guarantees, this aid aims to benefit specific - individual - companies. However, if not closely controlled, it can distort fair competition in the EU. To tackle this, state aid regulations within the European Union's Single Market are in place to ensure fair competition among businesses. Typically, all state aid requires the approval of the European Commission thereby preventing unfair advantages for certain companies, maintaining a level playing field, and promoting fair competition across the EU. However, an exception exists for aid falling below a specified threshold, since they are considered to have no impact on competition and trade in the Single Market. In these circumstances, the De Minimis regulation applies. Understanding the De Minimis regulations before applying for state aid is crucial. Indeed, if a company fails to comply with these regulations (e.g., by surpassing the De Minimis aid threshold), the received assistance might be categorised as illicit state aid and repayment of the benefit is required. Furthermore, this could also lead to legal sanctions, all of which negatively affects the company's reputation.

Changes in the De Minimis regulation, effective from 2024

As of January 1st 2024, several crucial amendments have come into effect with regards to the De Minimis regulations:

Increased threshold: the maximum amount of the De Minimis aid that a company can receive over three consecutive years has been raised from € 200 k to € 300 k. Fortunately for the transport sector, this new threshold is also applicable to them as they previously faced a lower threshold of € 100k.
Shift in reference period: the calculation period for the received aid has transitioned to a "rolling period" of the full three years. For example, in the case of an aid decision on February 1, 2024, all De Minimis aid granted from February 1, 2021 to February 1, 2024 will have to be taken into consideration. This replaces the former method in which the reference period could often be significantly shorter than three years, for example, when the aid was granted at the beginning of a financial year, the reference period was only two years and a few months.
Group affiliation: aid allocation remains calculated per Member State for all companies on a consolidated basis. This means the collective group can receive a maximum of € 300 k De Minimis aid per Member State.

An overview of future regulations planned

Looking ahead, forthcoming changes are set to reshape how companies engage with the De Minimis regulation:

Mandatory register implementation: by January 1st 2026, the European Commission plans to introduce a mandatory central register specifically dedicated to recording the De Minimis aid, thereby replacing the “declaration of honour” which is now in place. This register aims to streamline processes and reduce administrative burdens. For companies on the one hand, the reporting obligations and self-monitoring efforts of their compliance are reduced. For governmental bodies on the other hand, the control of the De Minimis ceilings are facilitated.
Transition period and ongoing compliance: until the register has been active for three consecutive years, the existing practice of declaring aid via a "declaration of honour" will persist. However, once the register is operational for the specified duration, companies are not required to complete a “declaration of honour”, potentially from January 1st 2029 onwards.

Closing remark

The changes regarding the De Minimis regulation mark a shift towards a more streamlined and transparent process in managing the De Minimis aid. Businesses operating within the European Union will have to remain vigilant to ensure compliance with the evolving regulations. If you want to get more insights on the De Minimis regulation, please reach out to Tom Wallyn (tom.wallyn@pwc.com), or Bart Wyns (bart.wyns@pwc.com). We are happy to guide you through the dynamic state aid landscape!

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