Tax & Accounting Blog

Belgium Implements Anti-Tax Avoidance Measures

BEPS, Blog, Global Tax Planning, International Reporting & Compliance November 9, 2017

On October 27, 2017, Belgium issued an overview of tax reform proposals, several of which implement EU Directive 2016/1164 of July 12, 2016 (ATAD 1) (the “Directive”) regarding hybrid mismatches, controlled foreign companies (CFCs) and limitation on interest deductions.

On October 27, 2017, the Belgian Ministry of Finance also announced that the federal cabinet will send the July 26, 2017 tax reform measures to Parliament for consideration, which it expects to be voted on in December 2017.

Hybrid mismatches (Action 2)

To the extent that a hybrid mismatch results in a deduction without inclusion, the payer’s member state shall deny the deduction. If this does not happen, then the recipient must take the profit into account. In the case of a double deduction, the recipient’s member state should deny the deduction and if this does not happen, then the payer’s member state should deny the deduction.

CFCs (Action 3)

Belgium shall treat an entity or permanent establishment (PE) of which the profits are not subject to tax or are exempt from tax as a CFC where both conditions are met:

  • In the case of an entity, the taxpayer by itself, or together with its associated enterprises, holds a direct or indirect participation of more than 50 percent of the voting rights, or owns directly or indirectly more than 50 percent of capital or is entitled to receive more than 50 percent of the profits of that entity.
  • The actual corporate tax paid on profits by the entity or PE is lower than the difference between the corporate tax that would have been charged under Belgium’s corporate tax system and the actual corporate tax paid.

Where an entity or PE is treated as a CFC, the taxpayer shall include in its tax base the undistributed income of the entity or PE arising from “non-genuine arrangements” put in place for the essential purpose of obtaining a tax advantage. An arrangement(s) shall be regarded as non-genuine where the entity or PE would not own the assets or would not have undertaken the risks which generate all, or part of, its income if it were not controlled by a company where the significant people functions, which are relevant to those assets and risks, are carried out and are instrumental in generating the controlled company’s income.

Limitation on interest deductions (Action 4)

According to the Directive, excessive borrowing costs shall be deductible in the tax period in which they are incurred up to 30 percent of the taxpayer’s earnings before interest, tax, depreciation and amortization (EBITDA). The taxpayer may deduct excessive borrowing costs up to EUR 3M (deduction applies only one time at the consolidated level with regard to consolidated interest). Interest that could not be deducted may be carried forward.

Exceptions to the 30 percent interest limitation rule apply to the following:

  • The taxpayer may fully deduct excessive borrowing costs if it is a standalone entity. A standalone entity is a taxpayer that is not part of a consolidated group for financial accounting purposes and has no associated enterprise or PE.
  • Interest paid on loans concluded prior to June 17, 2016. Belgium is implementing this rule as a transitional measure. Under the Directive, the exclusion shall not extend to any subsequent modification of these loans.

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