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What legislative and regulatory initiatives has the government taken to combat tax avoidance in your jurisdiction?
Belgian tax law has a general anti-abuse rule (Article 344, Section 1 of the Income Tax Code) which aims to prevent tax evasion or avoidance. The principal features of Belgium’s general anti-abuse rule are listed below.
In 2016 the government adopted several additional anti-abuse rules, many of which resulted from recent developments in international tax law. Examples of these developments include:
- the implementation of EU Directive 2015/121/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different EU member states (ie, the amended EU Parent-Subsidiary Directive (2011/96/EU)), which introduced anti-hybrid and general anti-avoidance rules; and
- the repeal of the patent income deduction regime, which was replaced by a new regime that is consistent with Base Erosion Profit Shifting (BEPS) Action 5.
To what extent does your jurisdiction follow the OECD Action Plan on Base Erosion and Profit Shifting?
Belgium has adopted the following measures resulting from or inspired by the BEPS recommendations:
- Belgium introduced an anti-hybrid instruments rule in its participation exemption regime as a result of the implementation of EU Directive 2014/86/EU amending the EU Parent-Subsidiary Directive (2011/96/EU) (BEPS Action 2).
- Belgium repealed its patent income deduction regime and replaced it with a new innovation income deduction regime in line with the modified nexus approach as of 1 July 2016 (BEPS Action 5).
- Belgium introduced a regime for the automatic exchange of information on tax rulings (including all arrangements concerning transfer pricing and the allocation of profits to permanent establishments) issued on or after 1 January 2017 as well as, under certain conditions, tax rulings issued, amended or renewed between 1 January 2012 and 31 December 2016 as a result of the implementation of EU Directive 2015/2376/EU amending EU Directive 2011/16/EU regarding administrative cooperation in the field of taxation (BEPS Action 5). Before its implementation, Belgium had already begun spontaneously exchanging rulings with other EU member states.
- Belgium introduced transfer pricing documentation and reporting requirements through country-by-country reporting and the two-tiered master and local file as a result of the implementation of EU Directive 2016/881/EU amending EU Directive 2011/16/EU regarding the mandatory automatic exchange of information in the field of taxation (BEPS Action 13). These requirements apply for financial years starting from 1 January 2016.
- Belgium signed the Multilateral Instrument on 7 June 2017 (BEPS Action 15) and notified that 98 of its 104 tax treaties will be covered therein. It opted to include in these treaties:
- the hybrid mismatch provision;
- the provision on binding arbitration and closing of pending cases within 24 months;
- the anti-fragmentation and commissionaire provisions amending the permanent establishment definition; and
- the principal purpose test provision.
- Belgium transposed the EU Anti-tax Avoidance Directive (2016/1164/EC) and the revised EU Anti-tax Avoidance Directive (2017/952/EU) into domestic law. As a result, new provisions in the Belgian Income Tax Code containing measures neutralising hybrid mismatches (within the European Union and towards third countries), controlled foreign company legislation, an exit taxation and step-up regime, and the interest limitation rule will enter into effect as of 2019.
Is there a legal distinction between aggressive tax planning and tax avoidance?
In the landmark case Brepols, the Supreme Court acknowledged taxpayers’ fundamental right to choose the route of least taxation freely. However, this legislature subsequently took certain measures to restrict this fundamental right. It ultimately resulted in the introduction of a new general anti-abuse rule in 2012, which adopted a fraus legis (ie, abuse of the law) approach. As the revised Article 344, Section 1 of the Income Tax Code contains new general anti-abuse rules, taxpayers’ fundamental right to choose the route of least taxation freely continues to exist, but has been further restricted.
This new notion of tax abuse has an objective and subjective component. The objective component is present if the taxpayer:
- avoids the application of the Income Tax Code or its decree of execution in a way that is incompatible with the code’s objectives; or
- claims that the application of the Income Tax Code or its decree of execution confers a tax benefit that is incompatible with the code’s objectives. In other words, the purpose and scope of the legal provision must be frustrated as a result of a certain legal act not being taxed or leading to a specific tax benefit.
According to preparatory work conducted, the conflict with the aims of tax legislation should also be understood in the light of the concept of ‘artificial construction’ (ie, a transaction that does not pursue the underlying economic objectives of fiscal legislation, has no connection with economic reality or does not take place under commercial or financial market conditions). In other words, this concept refers to legal acts that are performed solely to avoid taxes.
The subjective component refers to the fact that the essential objective behind the taxpayer’s choice of legal act(s) was to avoid tax or to secure a tax benefit.
In the general anti-abuse rule contained in the amended EU Parent-Subsidiary Directive (2011/96/EU), the notion of ‘abuse’ has been defined as the legal act or series of legal acts that are ‘not genuine’ and have been put in place with the “main goal or one of the main goals to obtain one of the tax advantages” listed in the rule.
What penalties are imposed for non-compliance with anti-avoidance provisions?
Civil and administrative penalties The Income Tax Code’s penalties are applicable where the Belgian Tax Authority successfully applies the general anti-abuse rule.
Criminal penalties The violation of Belgian tax law with fraudulent or harmful intent is punished with imprisonment of eight days to two years and a fine ranging from €250 to €12,500. The Income Tax Code contains a series of specific criminal offences relating to tax fraud which are punishable as follows:
- forgery: a prison sentence of between one month and five years and/or a monetary penalty ranging from €250 to €500,000; and
- falsification of testimony: a prison sentence between two months and three years.
Criminal penalties can be imposed only by judicial power.
For indexation reasons, all criminal fines need to be multiplied by a factor of eight.
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