Executive summary

On 26 January 2024, the law from 8 January 2024 amending the Belgian Code of Companies and Associations with respect to the disclosure of income tax information by certain undertakings and branches, commonly referred to as Public Country-by-Country Reporting (Public CbCR), was published in the Official Gazette. The new law implements the EU Directive 2021/2101 on the disclosure of income tax information by certain undertakings and branches (the EU Public CbCR Directive or the Directive). The new rules are implemented through incorporation in the Belgian Code for Companies and Associations (BCCA) and apply to financial years starting on or after 22 June 2024.

To a large extent, the new law mirrors the provisions of the EU Public CbCR Directive in terms of the scope of the Public CbCR requirements for (Belgian) undertakings, as well as the specific publication requirements (i.e., by when, where and by whom the publication should take place). Furthermore, the BCCA also provides a new set of penalties for noncompliance with the new Public CbCR requirements and requires auditors to include a statement in their audit report with respect to Public CbCR.

The transposition of the EU Public CbCR Directive into Belgian domestic law will have a significant impact on Belgian-based multinational enterprises (MNEs) and non-EU based MNEs doing business in Belgium through a branch or subsidiary.

Detailed discussion

Background

On 1 December 2021, the European Union published in its Official Journal the EU Public CbCR Directive (see also EY Global Tax Alert, EU Public CbCR Directive enters into force on 21 December 2021, dated 2 December 2021).

The Directive provides a set of rules that requires both EU-based MNEs and non-EU based MNEs doing business in the EU through a branch or subsidiary with total consolidated revenue of more than €750m in each of the last two consecutive financial years to disclose to the public information regarding the income taxes paid and other tax-related matters, such as a breakdown of profits, revenues and employees per country. Such information needs to be disclosed for all EU Member States and all jurisdictions included in the Annex I and Annex II of the Council conclusions on the EU list of noncooperative jurisdictions for tax purposes (so-called EU "black list" and "gray list"). For all other jurisdictions, it is sufficient for aggregated data to be disclosed.

The Directive entered into force on 21 December 2021. The EU Member States were required to transpose the Directive into national law by 22 June 2023.

Transposition of the Directive in Belgian domestic law

The law introducing Public CbCR into Belgian domestic law incorporates the new rules in the BCCA, applicable for financial years starting on or after 22 June 2024. The new legislation mirrors provisions in the EU Public CbCR Directive regarding the scope of the Public CbCR obligations for (Belgian) entities and the specific publication requirements.

Entry into force

In line with the Directive, the new provisions concerning Public CbCR as implemented in Belgian domestic law will be applicable for financial years starting on or after 22 June 2024. For most Belgian entities/branches, this implies the new requirements will apply for the financial year starting 1 January 2025.

Scope of the law

A Belgian undertaking is required to prepare and publish a report (the Report) on information regarding income taxes in the following cases:

• A standalone entity with net turnover of more than €750m in each of the last two consecutive financial years
• An ultimate parent entity (UPE) with consolidated (group) revenue of more than €750m in each of the last two consecutive financial years
• A medium-sized or large subsidiary controlled by an ultimate parent undertaking (UPU) that is not governed by the laws of a Member State, where the consolidated (group) revenue exceeds €750m in each of the last two consecutive financial years
• A branch with total revenue of at least €9m in each of the last two consecutive financial years that was opened by either (i) a standalone undertaking not governed by the laws of a Member State or (ii) an affiliated undertaking of a group whose UPU is not governed by the laws of a Member State; in both cases, the consolidated (group) revenue must exceed €750m in each of the last two consecutive financial years

Note that the King of Belgium has the right to adjust the €750m threshold after having carefully deliberated with the Council of Ministers and obtaining advice from the Central Economic Council.

There is no reporting obligation in Belgium if the €750m threshold for (consolidated) revenue is no longer exceeded for each of the last two consecutive financial years as reflected in the (consolidated) financial statements, or if:

• The standalone entity or UPE (and all of its subsidiaries, other group entities and branches) is liable to income tax only in Belgium and consequently is not a (resident or nonresident) taxpayer in another tax jurisdiction.
• The Belgian entity (subsidiary) is considered "small" in accordance with article 1:24 of the BCCA.
• The branch does not have (or no longer has) total revenue of at least €9m for each of the last two consecutive years.
• The UPU has already prepared and published a Report cfr. art. 48quarter of Directive 2013/34/EU, provided the following criteria are met:
• The Report is publicly available, free of charge, in an electronic, machine-readable form (a) on the website of the UPU, (b) in at least one of the EU official languages and (c) made available no later than 12 months after the closing date of the financial year for which the Report was drawn up.
• The Report mentions the name and registered office of the subsidiary respectively branch.

Note that the Public CbCR requirements do not apply to credit institutions and investment companies, provided they prepare and publish a report on information regarding income taxes in line with article 106 of the Law of 25 April 2014 respectively article 109 of the Law of 20 July 2022.

Moreover, the Public CbCR requirements do not apply to undertakings not listed in Annex I of Directive 2013/34/EU (i.e., Public CbCR requirements only apply to undertakings with full legal personality and for which the shareholders have (limited) liability).

Publication

In line with the Directive, the Report should be published within 12 months following the closing date of the financial year for which the Report is drawn up. The Report must be submitted to the National Bank of Belgium (NBB) and simultaneously published on the undertaking's website where it needs to remain available, free of charge, for an uninterrupted period of five years.

An exemption from the publication of the Report on the undertaking's website is available, provided that (i) the website refers to the exemption and (ii) the website refers to the Report as submitted to and published by the NBB.

Content of the Report

The King will determine the format and content of the Report through a Royal Decree. The content is however expected to be in line with the Directive. In this respect, we refer to the EY Global Tax Alert, EU Public CbCR Directive enters into force on 21 December 2021, dated 2 December 2021.

In line with the Directive, the Belgian law stipulates that if the non-EU HQ does not provide all the required information for Public CbCR purposes, the subsidiary undertaking or branch shall draw up, publish and make accessible a Report containing all information in its possession, obtained or acquired, and a statement indicating that its UPU did not make the necessary information available.

Some noteworthy observations can already be made in terms of content of the report:

            Reporting basis

The Directive stipulates that the data to be reported should be reported as follows:

• Separately for each Member State (where a Member State comprises several tax jurisdictions, the information shall be aggregated at Member State level)
• Separately for each tax jurisdiction that (i) on 1 March of the financial year for which the Report is to be drawn up, is listed in Annex I to the Council conclusions on the revised EU list of noncooperative jurisdictions for tax purposes and (ii) on 1 March of the financial year for which the Report is to be drawn up and on 1 March of the preceding financial year, was mentioned in Annex II to the Council conclusions on the revised EU list of noncooperative jurisdictions for tax purposes
• On an aggregated basis: for other tax jurisdictions

The Memorandum of Understanding stipulates that, in addition to the above, the information with respect to non-tax or low-tax jurisdictions should be reported separately. In this regard, reference is made not only to article 179 of the Royal Decree to the Belgian Income Tax Code (i.e., for implementation of article 307, §1/2 of the Belgian Income Tax Code on payments to tax havens), but also to article 73^4quarter of the Royal Decree to the Belgian Income Tax Code (i.e., in the framework of the dividends received deduction regime). It is to be seen how this will work out in practice (e.g., will Belgium require a separate filing with the additional granularity?).

           Link with "non-Public CbCR"

Where non-Public CbCR under BEPS 13 (as introduced in our domestic income tax code by law of 1 July 2016 and applicable for financials year starting on or after 1 January 2016) aims to provide tax administrations (both within and outside the European Union) with useful information to assess transfer pricing risks, make determinations about where audit resources can most effectively be deployed, the aim of Public CbCR is to increase corporate transparency and enhancing public scrutiny of income taxes borne by MNEs carrying out activities in the European Union.

A comparison between the content of the "non-Public CbCR" and "Public CbCR" reveals that the content to be reported in both reports largely coincides, with the latter requiring slightly less information to be reported (e.g,. stated capital). Consequently, the publication of the Report as discussed in this Alert may be based on broadly the same data points already included in the non-Public CbCR. Not being ready to prepare and file/submit the respective reports could ultimately lead to a double penalties for noncompliance.

           Omission of information

The Directive stipulates that Member States may — subject to conditions — allow for one or more specific items of information otherwise required to be disclosed to be temporarily omitted from the Report if their disclosure would be seriously prejudicial to the commercial position of the undertakings to which the Report relates. Information regarding tax havens, however, can never be omitted.

Belgium has opted not to implement this option. Consequently, if a Report must be filed in Belgium, all information will have to be disclosed.

Penalties

Noncompliance with the Public CbCR requirements as provided in the BCCA will result in a fine being imposed against the noncompliant undertaking, ranging from €50 to €10,000.

Additionally, failure to oblige to the Public CbCR requirements may also lead to imprisonment for a period ranging from one month up to one year if the failure is due to fraudulent intent.

Finally, the Commercial Court can (upon request of the Minister of Finance, the Minister of Economic Affairs, the public prosecutor's office or any interested party) order a subsidiary/branch established/opened in Belgium to prepare and publish the Report where such subsidiary/branch serves no other objective than to circumvent the reporting requirements laid down in the BCCA regarding Public CbCR.

Audit report

In line with the Directive, the Belgian law stipulates that the auditor in its audit report must state whether, for the financial year preceding the financial year for which the financial statements under audit were prepared, the undertaking was required to publish a Report and, if so, whether the Report was published in accordance with the respective rules. The audit can only perform a factual check of publication of the Report, and not of its content.

Implications

Where non-Public CbCR (under the BEPS 13 rules) merely required reporting to tax authorities, it becomes clear that with the implementation of the Directive as well as with Pillar 2, and more specifically the transitional CbCR safe harbor (TCSH) rules, the data included in a Country-by-Country Report will now be public (in the Public CbCR) and might impact a company's or group's compliance burden and effective tax rate (under the TCSH rules in conjunction with the Global anti-Base Erosion (GloBE) rules).

These developments confirm the increased importance for businesses to assess and map the availability of the datapoints required, as well as to improve the overall compliance processes in the framework of recent developments. Moreover, in view of the ever-increasing transparency regulations, business should closely monitor any legislative developments in this regard, identify any early adaptors, assess impact on existing data owners and processes for data collection, assess impact for (internal and/or external) stakeholders, etc.