The fight against tax fraud is gaining increasing attention worldwide, and Belgium is no exception. To this end, a number of new measures have been announced or taken. In 2009, the OECD (Organisation for Economic Co-Operation and Development) issued black and grey lists of countries that do not apply the internationally agreed tax standard with respect to the exchange of information. In this context, the bank secrecy of several countries, including Switzerland, Luxembourg, Austria and Belgium, was called into question. This article focuses on two important features of the Belgian tax system: the new disclosure obligation for payments to tax havens and on bank secrecy.
New disclosure obligation for payments to tax havens
The Omnibus Act of 23 December 2009 introduced a new disclosure obligation for companies, subject to Belgian resident and non-resident corporate tax, that make direct or indirect payments, as from 1 January 2010, to tax havens. These companies will be obliged to disclose such payments using a special form if they exceed EUR 100,000 during the tax year. The underlying purpose of the new rule is to bring potentially suspicious payments to the attention of the tax authorities.
According to the Omnibus Act of 23 December 2009, a tax haven is either a country that appears on the OECD’s black list or grey list or one where the nominal corporate tax rate is less than 10%. The Belgian government has announced that a royal decree listing these countries will be issued soon. The draft decree is currently under review by the Council of State (as of 19 February 2010). The list will be updated every two years.
In the event of non-compliance with these rules, deduction will be disallowed for corporate tax purposes. In certain circumstances (e.g., if the payment should have been reported as salary, etc.), the tax on so-called secret commissions (kickbacks) may apply. This tax is levied at a rate of 309% but is tax deductible.
Moreover, the Omnibus Act provides that the company must be able to prove that the payments were made “in the framework of genuine and sound transactions” (the Belgian Income Tax Code already included a similar requirement for qualifying payments to non-residents in certain low-tax countries) and "in favour of an entity other than an artificial construction” (this requirement refers to the ECJ’s Cadbury-Schweppes judgment of 12 September 2006). In practice, neither the act nor its legislative history clearly indicates how the wording "artificial construction" should be interpreted.
In order to more efficiently fight tax fraud, the Omnibus Act of 23 December 2009 also contains a provision to allow the Belgian tax administration to more efficiently exchange information on taxpayers. In brief, all information validly collected by a tax inspector can be transferred to another tax assessor or collector.
For the sake of completeness, it should be noted that neighbouring countries are currently taking similar measures. France, for instance, has amended its income tax code to introduce measures against payments to "uncooperative jurisdictions" (within the meaning of Article 238 of the French Income Tax Code). Effective 1 January 2011, qualifying in-bound dividends received by French companies will no longer benefit from the dividends received deduction, and the deduction of qualifying interest will be disallowed. As from 1 March 2010, a 50% withholding tax will apply to outbound dividend, interest or royalty payments to qualifying recipients.
Although it may appear, at first glance, that the disclosure of payments to tax havens has little to do with bank secrecy, these two issues are in fact connected. Two bills introduced into Parliament in October and December 2009 are aimed at abolishing bank secrecy in the national and international context. Whilst it is not very likely that these bills will become law, it should be noted that bank secrecy will no longer be an issue with regard to international payments if the payment is made to a qualifying tax haven, as the taxpayer will be obliged to disclose the payment in any case.
The tax authorities are currently not allowed to collect information from banks and credit institutions in order to levy tax, unless (1) material, precise facts indicate the preparation or existence of a tax-evasion mechanism or (2) a taxpayer contests a tax assessment and information from banks and credit institutions is needed to settle the matter or except (3) in the framework of the exchange of information under the Savings Directive. Bank secrecy cannot be raised against the tax collectors.
A Parliamentary report of 7 May 2009 thoroughly analysed both a number of important Belgian tax fraud cases and the measures that could be taken to more effectively fight tax fraud. The report suggested allowing the tax authorities to access account information if there are good reasons to believe that the taxpayer did not declare taxable income.
The Savings Directive provides for the exchange of information and the taxation of savings income in the recipient’s Member State. Since Belgium did not initially agree to exchange information on interest paid to EU residents, it was granted a transition period during which it could apply an additional withholding tax (15% until 30 June 2008, 20% until 30 June 2011, and 35% as from 1 July 2011) on top of the ordinary withholding tax on interest payments (15%). 75% of the additional withholding tax must be transferred to the recipient’s home country. The Omnibus Act of 21 December 2009 and two royal decrees of 27 September 2009 abolished this additional withholding tax and introduced an exchange-of-information obligation under Belgian law for interest granted or paid as from 1 January 2010.