The so-called “Super nota” of Bart De Wever’s contained a variety of proposed tax measures that would bring significant changes to the existing tax system. While the Super nota seems currently “in the fridge”, the budgetary situation of the country makes it likely that one or more of the measures in the Super nota will revive in the final government agreement.
Please keep in mind that as political discussions are not final, the proposed measures may be subject to change based on future negotiations. It is also important to mention that it cannot be excluded that, depending on the negotiations, a number of the proposed measures could be implemented as early as assessment year 2025, which corresponds to FY24 for companies with a financial year corresponding to the calendar year.
What is on the table
These potential tax reforms could impact the private equity sector at various levels:
At fund (structure) level
- The reform proposes to include several measures to make the participation exemption conditions more stringent which may disqualify certain structure from the regime– for some of these proposed changes, some remediating actions may be possible. Not benefitting from the participation exemption would impact the cash upstream.
- The current regulatory framework for private PRICAFs is restrictive and detailed. However, to strengthen the venture capital, a relaxation of the regulatory framework for private PRICAFs is being considered. Although the specifics of the relaxation are not yet known, it could lead to greater flexibility for investors and more efficient capital allocation in venture capital deals.
At investor level
- There are discussions around a lowering and harmonisation of (withholding) tax rate for investment income.
- The introduction of taxation of capital gains on shares (see below) may also impact the Belgian taxation of investors in private equity.
At portfolio level
- Simplification and harmonisation of exemptions, tax reductions, non-deductible expenses which would hopefully lessen the burden for tax compliance.
- (Re-)introduction of accelerated deprecations on certain investments which may provide cash benefits.
- Suppression of minimal taxable basis in case of adjustments upon tax audits except in cases of bad faith, repeated infractions, fraud etc: this may limit tax cash impacts of historical risks for which protections need to be sought upon an acquisition.
At (fund) manager level
- The proposed reform tackles the taxation of capital gains on shares:
- A capital gains tax of 10% (but with certain safeguards for historical capital gains and de minimis amount) – in order to apply these safeguards some preventative measures could be envisaged
- A clarification of the taxation of “abnormal” capital gains which is a difficulty topic in deal making when sellers are private individuals – this would be a welcome measure to reinforce legal certainty
- The proposed reform includes several measures to limit the (ab)use of corporate structures (e.g. Suppression of lowered withholding tax, increase and reinforcement of minimum wage condition to benefit from a reduced corporate tax rate etc). This may impact the overall tax burden of (fund) managers working in corporate structures
- Overhaul of the taxation of certain benefits in kind, with a specific focus on options and warrants which may increase the overall tax burden on employees and managers, potentially altering deal structures and post-acquisition integration strategies that rely on incentivizing key personnel through equity-based compensation
This contribution was realised in collaboration with Sarah Van Leynseele, Christophe Rapoye, Nicolas Petit and Marjolein De Jonge.
