On December 3, 2015, the Belgian Minister of Finance published a policy note entitled the Plan to Combat the Tax Fraud (the Plan), which addresses Belgium’s potential implementation of the OECD BEPS Project recommendations issued on October 5, 2015. The goal of the Plan is to have coordinated, as opposed to unilateral, measures to implement BEPS. The major points raised in the Plan were the introduction of country-by-country (CbC) reporting and other transfer pricing documentation requirements, increased audits, and other measures to prevent tax abuse and combat tax fraud.
Below are the individual action items included in the Plan, which details Belgium’s proposed initiatives with respect to those actions.
BEPS Action 1 – Digital Economy
Belgium intends to support any initiatives issued at the European level relating to the OECD BEPS Action 1 recommendations.
BEPS Action 2 – Hybrid Mismatch Arrangements
Belgium will evaluate proposals to be issued in 2016 by the EU Code of Conduct Group on combating hybrid mismatches in the permanent establishment (PE) context.
BEPS Action 3 – Controlled Foreign Company
While Belgium does not have a Controlled Foreign Company (CFC) regime, on August 10, 2015, Belgium issued the Program Law (Articles 38-42), implementing the so-called ‘Cayman Tax’, a transparency tax on income derived from assets owned by individuals or legal entities through certain foreign legal arrangements. However, the Cayman Tax does not apply to companies subject to corporate income tax, or to income paid to third-party beneficiaries established in a European Economic Area (‘EEA’) country or in a country that exchanges income tax information based on a tax treaty entered into with Belgium.
Belgium will evaluate its Cayman Tax regime to see whether additional legislation is needed to align with the OECD BEPS Action 3 recommendations.
BEPS Action 4 – Deductibility of Interest
As a result of increased scrutiny about tax avoidance by high-profile multinationals, Belgium amended its Thin Cap rules (Article 198(11) of the 1992 Income Tax Code) by imposing a 5:1 debt-to-equity ratio limit that came into effect on July 1, 2012 (previously 7:1) for the deduction of interest expense. The Thin Cap rules also apply to finance charges paid to tax havens and between group entities. The Thin Cap rules do not apply to loans made by leasing companies, and companies in the financial sector whose main activity consists of factoring or immovable leasing.
Although these rules are in effect, the Government believes they do not sufficiently address the OECD BEPS Action 4 recommendations. Belgium will monitor negotiations at the European level in the spring of 2016 to determine whether additional legislation is needed.
BEPS Action 5 – Countering Harmful Tax Practices
Belgium intends to fully support the OECD measures on automatic exchange of tax ruling information, as outlined in the OECD BEPS Action 5 recommendations. Specifically, the Plan states that Belgium is a frontrunner in this area, and is already spontaneously exchanging information with other countries in relation to Advance Pricing Agreement (APA) rulings concluded as from January 1, 2015.
BEPS Action 6 – Treaty Benefits
Belgium supports implementing changes to its double tax treaty network in order to prevent treaty abuse and clarify its PE definition.
BEPS Action 7 – Permanent Establishment
The Plan calls for a revised/new Belgian administrative circular letter on the definition of a ‘dependent agent’ PE.
BEPS Actions 8-10 – Transfer Pricing
Belgium will use the revised OECD transfer pricing guidelines from OECD BEPS Actions 8-10 as a reference for transfer pricing audits and tax rulings/APAs. Belgium has increased the number of transfer pricing audits since 2013 and will continue to make transfer pricing a priority during tax audits.
BEPS Action 12 – Mandatory Disclosure
The Finance Minister will examine the mandatory tax disclosure regimes of other jurisdictions (e.g. the U.K.) to determine whether this will create additional compliance burdens. Belgium has not otherwise announced whether it intends to further implement the OECD BEPS Action 12 recommendations.
BEPS Action 13 – Transfer Pricing Documentation and CbC Reporting
Currently, Belgium does not have formal transfer pricing documentation requirements. Mandatory reporting requirements are under consideration and would require taxpayers to document the arm’s length nature of their transfer pricing arrangements. The requirements are expected to be similar to the OECD recommendations for BEPS Action 13. Belgium intends to implement the OECD’s CbC reporting requirements into local legislation. The commencement of the reporting is expected to be from financial year 2016. In addition, it is expected that Belgium will observe the OECD’s threshold for CbC reporting of €750 million.
It is likely that Belgium will also introduce additional reporting requirements for intercompany transactions. Taxpayers would file a separate annex together with the corporate income tax return. The materiality threshold for intercompany transactions would be €500,000.
Belgium had previously issued guidelines (Circular No. Ci.RH.421/580,456) on November 14, 2006 recommending taxpayers to proactively compile transfer pricing documentation.
BEPS Action 14 – Dispute Resolution
The Plan emphasized the importance of efficient dispute resolution mechanisms and stated that Belgium is committed to implementing the minimum standard under OECD BEPS Action 14. Belgium intends to clarify domestic fiscal and legal procedures for taxpayers and tax administrations. These procedures include certain powers of investigation, settlement options, interaction of fiscal law and civil/criminal law provisions, time limitations, and penalties and administrative fines.
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