IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
An almost continuous wave of laws implementing an important number of “miscellaneous measures”, or “containing tax and financial matters” has struck Belgium in 2012.The present climate of crisis has led Belgian authorities to seek new sources of financing or to enforce, sometimes at any cost, thus regardless of several important rights of the taxpayers.
As a result, the situation of Belgian taxpayers worsened: by reference to OECD’s numbers, natural persons are taxed in Belgium at a 55% of his revenue (total taxation), that means at least 10 points above than its neighbors (independent audits state a number of 57%).
In the field of corporate taxation, following OECD’s numbers, Belgium ranks among the 5 most taxed countries in the world.
Unfortunately, one has to be pessimist for the future - at least in the near future - considering that growth is blocked to 0% for 2013 but also because the future measures for 2013 have been announced or discussed will most likely have a negative impact on the situation.
2012 was thus rich in tax measures. The reader will find bellow the measures which present an interest, whether direct or indirect, on the principles plan.
Movable income has been subject to two reforms in 2012. A first reform was applicable to income allocated as from 1 January 2012. For those income, the principle of the withholding tax considered as a final tax had been abandoned and, consequently, to report income became mandatory. Also, the rate has been increased from 15% to 21% and an additional levy had been introduced, that was an addition of 4%, thus 21+4%, on “important” movable income (exceeding €20,020).
Following the law of December 28, 2012, the government tried to simplify the situation. The nominal withholding tax for interest and dividends was raised from 21% to 25%; the 4% additional rate has thus been abolished.
a. Interest: Withholding tax of 25%, except:
> Revenue of savings not exceeding €1,250 (indexed to €1,880 for the tax year 2014) : exempted
> Revenue of savings exceeding the aforesaid threshold: withholding tax of 15%
> Revenue of State bonds issued between November 24 and December 2, 2011: withholding tax of 15%
b. Dividends withholding tax will be paid at a 25% rate (except on the revenue of some very specific products).
c. Liquidation surplus: the withholding tax has been maintained at a 10% rate.
d. Resident SICAFI : withholding tax is raised from 0% to 15%
Furthermore, the obligation to declare movable income has been repealed; thus, the withholding tax becomes final again (exception : income from royalties has still to be declared, even if this income has been subject to withholding tax at the source).
Finally, the same act provides that the rate of the withholding tax on royalties (income from the cession or concession of copyright and related rights, as well as legal or compulsory licenses) will be of 25% as from January 1st, 2013.
Nevertheless, income from author’s rights up to an amount of €56,450 (tax year 2014) is regarded as moveable income and remains taxed at 15%.
By a Law of September 20, 2012, the UNA VIA principle has been introduced into the Belgian tax law (only for direct taxation frauds). Hence, as soon as the law enters into force, a tax fraud case will be handled either by the tax administration or by the public (King’s) prosecutor authorities but not by both of these administrations simultaneously as was the case before. This rule is therefore an application of the non bis in idem principle.
Under the new regime, the Public Prosecutor’s office and the tax administration will consult, case by case, in order to decide whether such case will be subject to criminal prosecution or just handled by the tax administration. If the “rule” is that important frauds will be prosecuted ; nevertheless, the law does not provide any criteria in order to distinguish the important from the “less important” frauds (in an October 2012 Circular, the tax administration considers that criminal procedures will take place only if the case implicates special investigations that could only be ordered and enforced).
In any case, if the prosecution path is chosen, administrative fines of any kind will be suspended.
One must note that a motion of annulment of these provisions has been filed against this law - the case is pending before the Constitutional court.
Finally, the maximum fine, for tax offenses, in the criminal procedure frame, has been raised from €125,000 to €500,000 (in some cases where certain special provisions apply the amount can be much higher).
The Law of December 13, 2012, modifying a Law of December 28, 2011, has changed the regime of disallowed expenses related to company cars.
Accordingly, the benefit in kind resulting from the use of a company car will be calculated following now on the basis of a new lump sum calculation method. The new calculation is made as follows: 6/7th of the catalogue value of the car multiplied by a percentage linked to the car’s CO2 emission rate:
Benefit in kind = catalogue value * % (CO2 coefficient) * 6/7
Starting with tax year 2013, the possible carry-over for lack or insufficiency of profits will be abolished; therefore, the allowance for corporate equity can only be set off against profits of the taxable period linked to the deduction.
In the same time, transitional measures have been put in place for the companies who still had remaining allowances for corporate equity that could be carried over on December 31, 2011. For these companies, the carry-out remains possible. Nevertheless, above €1,000,000 the carry-over is limited to 60% of the remaining profits but, in the same time, an extension of the carry-over period is accepted for the amounts which could not be deducted because of the aforementioned limit of 60%.
The Law of December 13, 2012, modifying a law of March 29 of the same year, amended the provisions of Belgian tax law related to capital gains on shares; the former version provided that capital gains realized by Belgian companies were totally exempted from taxes.
Under the new lax, the tax exemption is maintained but, as from tax year 2013 (related to gains realized from November 28, 2011), will be submitted to a condition: the company must hold the shares for an uninterrupted period of one year. If this delay is not respected (certain operations, neutral from a tax point of view, are not considered as interrupting the one year delay), the company will be taxed at a rate of 25% (global rate after surcharges: 25.75%).
The law of March 29, 2013 (modified by a law of June 22, 2013) modified the Belgian corporate tax law provisions on thin-capitalization. The provisions concern interest payments or attributions to (real) beneficiaries.
Under the new laws, the 7:1 debt/equity ratio formerly existing has been brought to 5:1. In accordance with the new provisions, the tax-deduction of interest payments or attributions exceeding the 5:1 will not be accepted.
This rule does not apply to the loans contracted:
> By leasing companies to companies whose main activity consists of factoring or immovable leasing within the financial sector and to the extent the funds are effectively used for leasing and factoring activities;
> By companies which a primarily active in the field of public-private co-operation.
When the rule is applicable, and for the purposes of its application:
> Equity is the sum of the taxed reserves at the beginning of the taxable period and the paid-up capital at the end of the taxable period (in certain cases, certain non-taxed reserves are deemed to be taxed reserves).
> Debt is
• loans where the beneficial owner is not subject to income tax or is subject to a substantially more advantageous tax regime (interest taxation) than the Belgian one;
• intra-group loans.
The law also provides that when the loans are guaranteed or funded by a third party which bears, partly or wholly, the risk, the aforesaid third party is deemed to be the beneficial owner of the interest, if the guarantee or the funding have tax avoidance as their main target. Similarly, third party in this context would also mean group companies, even if the loan has formally been granted by a non-group member.
> Debt is NOT :
• bonds and other publicly issued securities;
• loans granted by financial institutions.
The Law of March 29, 2012 has introduced a new “anti-abuse rule” concerning direct taxation and registration rights (and, indirectly, estate rights). Hence, the concept of tax abuse has been instituted; when such a tax abuse will be established, the operation or series of operations forming a global transaction will not be considered as opposable to the tax administration.
Following (new) article 344, §1 of the Belgian Code of taxes on revenue, the tax abuse will be presumed in two cases:
> If the tax payer when the tax payer will place himself , in violation of the purpose of a provision of the Code, outside the scope of the aforesaid provision;
> If the taxpayer tries to obtain (or actually obtains) a tax benefit when the grant of such tax benefit would be in violation of the purpose of said provision and his primary purpose is to obtain the tax benefit in question.
Therefore, under the new rule, if the tax administration manages to demonstrate a tax abuse, the taxpayer will have to demonstrate that the operation is justified by motives which are not related to tax evasion. If the taxpayer fails to do so, he will be taxed as if the operation had not taken place.
The annulment of the provisions of the law of March 29, 2013, related to the tax abuse measures is pursued in a case pending before the Constitutional court.
By the law of August 24, 2012 on the collection of tax information by the tax administration, the Belgian legislator has authorized the tax administration to gather information on the taxpayers (creating in this way a giant personal data base) in order to accomplish its missions in a more effective way. This database will gather all the data available from the different branches of the tax administration, which is authorized to draw all information necessary within the strict framework of its missions.
This law has raised a wave of critics (and has been attitude before the Constitutional court), especially concerning two points:
> The Control commission who will have to ensure the monitoring of the activities of the tax administration and the good application of the law will be a part of the Ministry of finance; a fact that raises the question of its independence;
> In case of tax control or acts preparatory to a tax control (and provided that the aforesaid commission approves the suspension), the right of the taxpayer to consult his personal data, or to have it corrected, will be suspended till the end of control.
Given the fact that Belgian law does not define “preparatory acts to a tax control”, nor provides any maximum duration of the tax control, in many cases, the length of the suspension of the rights deriving from the right to privacy will be suspended indefinite.
Payments in cash for the purchase of goods (between professionals or to a professional but not between private persons, or deposits on bank accounts) a professional frame) were limited, since the law of 1993, to €15,000. The law of March 29, 2013 has reduced this threshold, to €3,000 and extended the limitation to payments for services. In both cases, the limit is determined on the basis of the service or good; therefore, it is useless to try to avoid the application of the law by making multiple payments.
People who violate the law are punished with a fine (which cannot exceed 10% of the amount paid in violation of this provision).
Tax payers who make gifts to recognized institutions, for an amount of €40 or above will be granted à 45% tax credit. Of course, limits have been provided: the total amount of the gifts cannot exceed 10% of the net income of the couple (if the taxpayer is married) nor, in any case, €365,950 per spouse.
Tax credits for work aimed at energy saving have been abolished as from tax year 2013, with the exception of roof insulation. This abolishment has been accompanied with transitional measures for expenses incurred in 2012 under an agreement signed before November 28, 2011.
Notaries and bailiffs are subject to VAT as from January 1, 2012 (law of December 28, 2011.The Belgian government just announced that lawyers will also be subject to VAT as from January 1, 2014.
Processor at the Université Libre de Bruxelles
Lawyer (www.afschrift.com ...)
A short presentation of IREF ’Yearbook on Taxation in Europe’ Series
Among the many ways to understand the climate of opinion and the culture of a country, looking at its fiscal system is one of the most rewarding. Sure, fiscal systems almost always rhyme with complexity; each system bearing the (...)