December 19, 2023
Belgian parliament approves draft bill on Pillar Two
On 14 December 2023, the Belgian parliament approved the draft bill to introduce into Belgian law the Pillar Two minimum effective tax rate of 15% for multinational enterprises and large-scale domestic groups with consolidated annual revenues exceeding €750m.
The Memorandum of Understanding confirms that the new legislation is aligned with the Organisation for Economic Co-operation and Development (OECD) Pillar Two model rules and implements the European Union Pillar Two Directive (EU Directive 2022/2523). Interaction with and consequences of (updated) Agreed Administrative Guidance should be closely monitored.
Effective for Fiscal Years starting on or after 31 December 2023, a Qualified Domestic Minimum Top-up Tax (QDMTT) and an Income Inclusion Rule (IIR) is introduced. An Undertaxed Profits Rule (UTPR) will apply for Fiscal Years starting on or after 31 December 2024. The bill also includes a Transitional Country-by-Country Reporting Safe Harbor as well as a transitional UTPR Safe Harbor for MNE Groups in the initial phase of their international activities.
Furthermore, the bill includes noteworthy amendments to certain existing provisions, in particular an amendment to the research and development (R&D) tax credit regime to meet the definition of a "Qualified Refundable Tax Credit."
New compliance and filing requirements are included, as well as a system of advance tax payments to collect the Top-up Tax under the QDMTT and IIR. The bill includes in the interaction between the (current) system of advance tax payments for the corporate income tax liability and the advance tax payment system for the QDMTT.
On 20 December 2021, the OECD released the Pillar Two Model Rules as approved by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) — (See EY Global Tax Alert, OECD releases Model Rules on Pillar Two Global Minimum Tax: Detailed review, dated 22 December 2021). The Model Rules define the scope and key mechanics for the Pillar Two system of global minimum tax rules, which includes the IIR and the UTPR, referred to collectively as the Global anti-Base Erosion (GloBE) rules.
The Pillar Two Model Rules aim to establish a minimum tax rate for large multinational enterprises (MNEs) on the income generated in the countries where they operate. These rules are presented as a model that jurisdictions can use to develop their own domestic legislation.
In addition, in 2022, the OECD published the Commentary to the Pillar Two Model Rules (See EY Global Tax Alert, OECD releases Commentary and illustrative examples on Pillar Two Model Rules, dated 21 March 2022), along with guidance on safe harbors and penalty relief under the GloBE rules (See EY Global Tax Alert, OECD/G20 Inclusive Framework releases document on safe harbors and penalty relief under Pillar Two GloBE rules, dated 21 December 2022). Since then, the OECD has also released Agreed Administrative Guidance (published on 2 February 2023 and 17 July 2023) that provides additional information concerning the interpretation and operation of the GloBE Rules (See EY Global Tax Alerts, OECD/G20 Inclusive Framework releases Administrative Guidance under Pillar Two GloBE Rules: Detailed Review, dated 9 February 2023, and OECD/G20 Inclusive Framework releases additional Administrative Guidance on Pillar Two GloBE Rules: Detailed review, dated 21 July 2023).
On 15 December 2022, the Council of the European Union (i.e., the EU Member States) unanimously adopted the directive ensuring a global minimum level of taxation for MNE groups and large-scale domestic groups in the EU (the Directive) — (See EY Global Tax Alert, EU Member States unanimously adopt Directive implementing Pillar Two Global Minimum Tax rules, dated 15 December 2022). The Directive intends to ensure the GloBE rules are implemented in a coordinated manner throughout the EU, as adjusted to comply with EU law and taking into account the specifics of the EU Single Market.
EU Member States have until 31 December 2023 to transpose the Directive into national legislation with the rules to be applicable for Fiscal Years starting on or after 31 December 2023, with the exception of the UTPR, which is to be applicable for Fiscal Years starting on or after 31 December 2024.
On 14 December 2023, the Belgian Parliament approved the draft bill to introduce the Pillar Two rules into Belgian law. The legislation can therefore be considered substantively enacted as from 14 December 2023. The rules are generally aligned with the EU Directive and, thus, also the OECD Model Rules. The newly approved Pillar Two rules are implemented in a separate Pillar Two Act, rather than being incorporated into the existing Income Tax Code.
The rules apply to all MNE groups and large-scale domestic groups with annual consolidated revenues exceeding €750m in at least two of the last four Fiscal Years.
Effective for Fiscal Years starting on or after 31 December 2023, a QDMTT and IIR is introduced. An UTPR will apply for Fiscal Years starting on or after 31 December 2024.
The QDMTT is computed in line with the OECD Model Rules (including the substance-based income exclusion) and includes a de minimis exclusion. The Transitional CbCR Safe Harbor is also extended to the QDMTT. The QDMTT is to be determined based on the accounting standard used for preparing and filing the consolidated financials of the Ultimate Parent Entity accounts.
The Memorandum of Understanding confirms that the model for the QDMTT return will not include additional datapoints beyond those required for computing the Top-up Tax liability under the IIR/UTPR.
Under Belgian domestic tax law, the UTPR will be levied by means of an additional levy instead of a deduction limitation.
The Memorandum of Understanding confirms that the OECD Agreed Administrative Guidance serves as a source for interpretation.
Transitional CbCR Safe Harbor
The bill includes the Transitional CbCR Safe Harbor, i.e., a temporary measure that allows an MNE to avoid undertaking detailed GloBE rule computations if it can demonstrate, based on its Qualified Country-by-Country (CbC) report, that for a jurisdiction it has met one of the following tests: i) revenue and income below the de minimis threshold; ii) an effective tax rate that equals or exceeds an agreed rate; or iii) no excess profits after excluding routine profits.
If one of these tests is met, the Top-up Tax in a jurisdiction for a Fiscal Year will be deemed to be zero.
Other safe harbors
The bill includes the transitional UTPR Safe Harbor, hereby reducing the total UTPR Top-up Tax to zero for MNE Groups that are in the initial phase of their international activities.
Other significant rules
R&D tax credit regime
The bill includes noteworthy amendments to certain existing provisions. In particular, amendments to the R&D tax credit regime (i) shorten the repayment period of the R&D tax credit from five to four years to meet the definition of a "Qualified Refundable Tax Credit" and (ii) introduce an option to either offset or transfer the R&D tax credit (instead of an automatic offsetting mechanism) to prevent neutralizing or mitigating the benefit of the R&D tax credit through interaction with foreign tax systems (e.g., US global intangible low-taxed income (GILTI) for a Belgian controlled foreign corporation (CFC)).
Limitation rule for use of certain tax attributes
The Belgian limitation rule for the use of certain tax attributes is expected to change (again) following the introduction of the Pillar Two legislation, subject to an announcement by the Minister of Finance in the Belgian Official Gazette (See EY Belgium Tax Alert, New corporate tax measures as from 1 January 2023, dated 11 January 2023). More specifically, under the current limitation rule, 60% of the taxable profit exceeding €1m constitutes a minimal taxable basis. The 60% threshold will be reduced to 30% again as of tax year 2025 (financial years starting on or after 1 January 2024).
Administration and compliance
New compliance and filing requirements, as well as a system of advance tax payments are introduced. Moreover, some other relevant considerations should be noted.
QDMTT and IIR/UTPR return
Separate returns (one for the QDMTT and another one for the IIR/UTPR) will have to be prepared and submitted, as follows:
Advance tax payments
Similar to the corporate income tax liability, a system of (voluntarily) advance quarterly tax payments is introduced, allowing for collection of the Top-up Tax under the QDMTT and IIR in the same year in which the low-taxed profits are realized:
Implications and next steps
It will be important for businesses to assess and map the potential impact of the Pillar Two Global Minimum Tax on their tax positions, potential disclosures in their financial statements, the availability of the required datapoints in their systems as well as their overall compliance processes.
As a next step, the bill will be published in the Belgian Official Gazette. Certain elements will be addressed by means of a Royal Decree (e.g., model of QDMTT and IIR, respectively, UTPR return, modalities of UTPR levy, etc.).
The interaction with and consequences of (updated) Agreed Administrative Guidance on the current legislation should be monitored. In particular, the question arises whether (updated) Agreed Administrative Guidance can be considered merely as explanatory or interpretational in nature or as constituting new rights and obligations, requiring a (reparation) law or whether such new guidance will be reflected in administrative circular letters.
It remains to be seen if (and when) certain existing tax provisions, such as the Belgian dividend received deduction regime, the CFC rules or even the current applicable group contribution regime, etc. will be amended as a result of Pillar Two.
Businesses should also continue to monitor developments in other countries that are relevant to their footprint.
For additional information with respect to this Alert, please contact the following:
EY Tax Consultants BV (Belgium)
Ernst & Young LLP, Belgian Tax Desk, New York
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor