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December 12, 2022
2022-6196

Belgium implements new corporate income tax rules starting 1 January 2023

  • Starting 1 January 2023, new corporate income tax rules will enter into force for Belgian companies or Belgian branches.

  • With the intention to strengthen the fight against international and complex tax fraud, the statutes of limitations for both income tax and value-added tax (VAT) were recently reformed and aligned with international standards.

  • As part of the recently approved federal budget for 2023, Belgium will impose restrictions to the existing foreign tax credit (FTC) regime for royalty income and the limitation rule for certain tax attributes. Furthermore, the notional interest deduction will be eliminated.

Executive summary

Starting 1 January 2023, new corporate income tax rules will enter into force for Belgian companies or Belgian branches. First, the statutes of limitations for both income tax and VAT were recently reformed and aligned with international standards. Second, restrictions will be imposed to the existing FTC regime for royalty income and the limitation rule for certain tax attributes. And finally, the notional interest deduction will be eliminated.

Detailed discussion

Alignment of tax procedures with international standards and extended periods

With the intention to strengthen the fight against international and complex tax fraud and to create more transparency, the Belgian Parliament approved several measures resulting in an extension of the tax authorities’ means and tools in investigating and assessing taxpayers

First, the law contains two smaller provisions which give the tax authorities the possibility to: (i) extract data from the ultimate beneficial owner register in bulk for data mining applications (no limitation to one specific taxpayer); and (ii) introduce a claim (before the Court) for a penalty payment under the condition that they demonstrate the taxpayer’s refusal to cooperate in a tax investigation.

However, the most significant measures in this law relate to the extension of the investigation and assessment periods, the retention period, and the period for filing an administrative appeal.

With respect to income taxes, the standard investigation and assessment period remains to be three years. However, this period can be extended up to four years in the case of no or late filing of the income tax return. Also, in case of no or late filing or if the tax due would exceed the tax, based on a timely filed tax return, a new six-year investigation and assessment period is introduced as a standard rule for tax returns with specific cross-border elements. These elements are:

  • Obligation to file a local Transfer Pricing form (275.LF)

  • The entity is subject to country-by-country reporting

  • Making payments to tax havens

  • Application of withholding tax reductions or exemptions

  • Application of a foreign tax credit

  • If information would be received from reportings a.o. under the DAC6/Mandatory Disclosure Reporting legislation

Finally, a new assessment period of 10 years is introduced in case of a “complex” tax return. A tax return will be considered “complex” in three specific cases:

  • Existence of legal constructions subject to the so-called Cayman tax

  • Hybrid mismatches

  • Companies that are subject to CFC (controlled foreign companies) rules

It is important to note that the prior existing obligation for the tax authorities to evidence the indications of tax fraud is now replaced by a mere notification that fraud is suspected, because of which the extended term of 10 years could be applied.

In view of harmonizing the different periods in the case of fraud, the retention period for books, records, other documents and for information on computer systems based on which the amount of the taxable income may be determined is also extended to 10 years as from the end of the taxable period.

All the above-mentioned new periods are applicable as from tax year 2023. Current legislation continues to apply to previous tax years.

To compensate for the extension of the investigation and assessment periods allocated to the tax authorities, the law grants extra time to file an administrative appeal. The period is prolonged from six months up to one year as from 1 January 2023.

To harmonize VAT with direct taxes, a retention period of 10 years is also introduced in the VAT code as well as an extension of the investigation period up to 4 years in the event of no or late filing of the VAT return and up to 10 years in case of tax fraud.

Introduction of various measures as part of Budget 2023

As part of the recently approved federal budget for 2023, Belgium will impose additional limitations to the existing FTC rules for royalty income and the limitation rule for certain tax attributes. Furthermore, the notional interest deduction will be eliminated. These measures will be approved by Parliament before year-end 2022.

Limitation rule for the use of certain tax attributes

Since 2018, Belgian tax law provides limits the combined use of certain tax attributes (per taxable period) to €1 million, increased by 70% of the taxable profit exceeding the amount of €1 million. This limitation rule applies to the notional interest deduction (NID), carried forward tax losses, carried forward dividend received deduction, carried forward innovation deduction and carried forward NID. As a result of the limitation rule, 30% of the taxable profit exceeding the amount of €1 million constitutes a minimal taxable basis.

As of tax year 2024 (financial years starting on or after 1 January 2023), the threshold will be reduced from 70% to 40% of the taxable profit exceeding the amount of €1 million. The Government announced that this additional limitation (to 40%) is temporary and will be abolished (back to 70%) as soon as the global minimum tax (as part of the Pillar Two/GloBE rules that are currently being discussed at Organisation for Economic Co-operation and Development and European Union level) enter into force.

Elimination of the Notional Interest Deduction regime

For Belgian companies to strengthen their equity structure, without compromising the benefit of tax-deductible interest payments, the NID was a deemed (off-balance) tax deduction for which no cash payment or interest expense is booked.

Recently, the NID was significantly redesigned as a result of the Belgian corporate tax reform in 2017. Now, the Belgian Government has decided to eliminate the NID for taxable periods ending from 31 December 2023. Carried forward NID, accumulated in the past, can still be deducted going forward.

Foreign tax credit for royalty-income

Belgium provides for a unilateral relief from double taxation on certain foreign-source income, including royalties, under the form of an FTC. Based on current legislation, a lump-sum approach is applied for royalties (standard 15% credit), irrespective of the royalty withholding tax actually paid in the source state. This provided for “tax sparring” opportunities.

As from 1 January 2023, the FTC remains in place, but will be limited to the withholding tax actually paid in the source state, with a maximum of 15%.

_________________________________________

For additional information with respect to this alert, please contact the following:

EY Brussels

EY Hasselt

EY Antwerp

Ernst & Young LLP, Belgian Tax Desk, New York

 
 

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