The Belgian government has approved a new draft bill concerning tax and financial measures (the "Draft Bill"), which has been introduced into Parliament recently. The Draft Bill implements a fourth package of tax measures which were announced during the formation of the Belgian government and which relate to the notional interest deduction. In addition, the Draft Bill implements certain new tax measures, mainly concerning Belgian non-resident income tax and the tax exemption of capital gains on shares.
I. Notional interest deduction ("NID")
The Draft Bill provides that, as of assessment year 2013 (i.e., all financial years closing on 31 December 2012, or in 2013 but before 31 December 2013), companies no longer have the possibility to carry forward excess NID generated during the assessment year and subsequent assessment years. However, the NID "stock" generated in the past and consisting of carried forward NID existing at the end of assessment year 2012 can continue to be carried forward.
This NID stock can continue to be carried forward for seven years (as is currently the case), subject to two restrictions:
- The deduction of NID stock will become a separate and last operation in the corporate income tax return. This means that the NID stock can only be used in respect of the profit remaining after application of the Dividend Received Deduction, the Patent Income Deduction, the NID generated during the taxable period, the use of the tax losses carried forward, etc.
- The deduction of NID stock is limited to 60 percent of the remaining taxable base (after application of the other deductions). However, this restriction does not apply to the first EUR1 million of remaining taxable profits.
This means that:
- if the remaining profit does not exceed EUR1 million, the 60 percent restriction is not applied; and
- if the remaining profit exceeds EUR1 million, the maximum amount of NID stock which can be used is equal to EUR1 million, increased by 60 percent of the amount of the remaining profit exceeding EUR1 million.
Surplus NID stock, which cannot be used as a result of the 60 percent restriction, can be carried forward until the amount which could have been deducted if the 60 percent restriction had not applied is fully used, regardless of the seven-year limitation period. Hence, NID stock which would have been deductible under the current seven-year limitation period remains under the new rules deductible over a longer period to the extent of 40 percent of the taxable profit above EUR1 million as realised during assessment year 2013 and following.
II. Belgian non-resident income tax
The Draft Bill also includes several amendments to the Belgian non-resident income tax regime.
A. Remuneration of non-resident employees and managers
At present, remuneration of non-resident employees and managers is taxable under Belgian non-resident income tax when such remuneration is borne by a Belgian resident employer or by a Belgian establishment of a non-resident employer.
The Belgian tax authorities are in this respect of the opinion that the remuneration of non-resident employees and managers, which is indirectly borne by a Belgian resident employer or a by a Belgian establishment of a non-resident employer, is also taxable under Belgian non-resident income tax. This is the case when, e.g., an employee is seconded by a foreign company to a Belgian group company and his remuneration is recharged by the foreign company to the Belgian group company by means of a service fee. The Draft Bill now confirms this position and amends the relevant tax provision accordingly.
Obviously, if one of the various tax treaties concluded by Belgium applies, Belgium will only be able to assert its taxing rights if the conditions of the relevant treaty are also met.
B. New "Services" Belgian establishment
Belgian domestic tax law relies on the notion of Belgian establishment ("BE") for the taxation of profit realised in Belgium by non-residents. The Draft Bill extends the notion of a BE to encompass the so-called Services Permanent Establishment ("PE"), which was brought forward in the 2008 OECD Commentaries. The Draft Bill recognises a BE when a non-resident enterprise performs services in Belgium in the context of one or several related projects by means of one or more individuals who are present in Belgium and render such services during a period or periods exceeding in aggregate 30 days in any 12-month period.
As Belgium currently does not have any tax treaties providing for a Services PE, the application of the new Services BE will, for now, be limited to non-resident enterprises which cannot rely on a tax treaty with Belgium.
The Draft Bill also provides for an anti-abuse provision to counter the artificial splitting of contracts. Under this provision, the duration of equivalent activities carried out in Belgium by associated enterprises are presumed to constitute one and the same project to determine whether the relevant thresholds are exceeded. This presumption can be rebutted if there are other reasons for having these activities performed by several enterprises than the mere avoidance of a BE. This provision will in principle enter into force as of 1 January 2013.
C. New catch-all provision
The Draft Bill also provides for a new catch-all provision under Belgian non-resident income tax.
Belgium can levy taxes on income generated by a non-resident which would as such not be taxed under any other Belgian tax provision, provided that the costs are borne in Belgium and (i) Belgium has, based on its tax treaties, taxation powers over such income or (ii) the income is generated by a non-resident which does not benefit from treaty protection and which cannot prove that the income is effectively taxed in its residence state.
The taxation of this income will in principle take the form of a professional withholding tax to be withheld by the Belgian payer and will represent a tax cost of 16.5 percent. If the non-resident can rely on a tax treaty with Belgium, this tax cost might be further reduced.
III. Tax exemption of capital gains on shares
As of assessment year 2012, the exemption from Belgian corporate income tax of capital gains realised on shares is subject to a new condition requiring that the shares have been held for an uninterrupted period of at least one year prior to their realisation. The calculation of the one-year holding period in case of a transfer of shares in the framework of a tax-neutral reorganization (e.g., merger) has, however, given rise to some uncertainty.
The Draft Bill now clarifies that shares received in the framework of a tax-neutral reorganisation are deemed to have been received, for the purposes of calculating the one-year holding period, on the date at which they were acquired by the absorbed, contributing or (partially) demerged company (there is in other words a roll-over of the holding period).