11/07/2016 - Apart from the new tax regime for the sharing economy, the Programme law of 1 July 2016 (Belgian State Gazette 4 July 2016) introduced a number of other fiscal measures, including provisions that introduce transfer pricing documentation in line with Action 13 of the OECD’s BEPS project and other budgetary measures, including measures to combat tax fraud.
Transfer pricing documentation
The Law implements the three-tiered standardized approach set out in Action 13 of the OECD’s BEPS project, in the new articles 321/1 to 321/7 of the Tax Income Code 1992 with a master file, a local file and country-by-country reporting.
Every year, Belgian resident parent companies of multinational groups with consolidated gross revenue of EUR 750 million must file a country-by-country report.
A Belgian company that is not the ultimate parent company may be appointed as the “surrogate ultimate parent company” if (1) the ultimate parent entity is not obliged to submit a country-by-country report in its country of residence, if (2) the ultimate parent entity is obliged to submit a country-by-country report, but there is no automatic exchange of country-by-country reports between Belgium and its country of residence, or if (3) the ultimate parent company is obliged to submit a country-by-country report, and even if there is automatic exchange of country-by-country reports, there is no effective exchange of information due to systematic failure.
In each of these three situations, a group can decide to nominate a Belgian company as the surrogate ultimate parent entity that will comply with these country-by-country reporting obligations. A Belgian group entity will need to notify to the Belgian Tax Authorities that it is either the ultimate or surrogate group company, and if it is neither, it must report the identity and the residence of the ultimate or surrogate group entity.
The report must detail for each country where the group has activities: the gross revenue, the profit or loss before income tax, the income tax paid, the income tax accrued in the financial statements, the share capital, the retained earnings, the number of employees in full time equivalents, and the company’s tangible assets. The report must be filed on a specific form that will be determined by Royal Decree within twelve months after the end of the financial year.
It must be completed in one of the three official languages, but the information may also be provided in English. The information contained in the country-by-country reports will be exchanged with the tax authorities of other countries when so required by “qualifying” agreements, such as the Multilateral Convention on Administrative Assistance in Tax Matters of 25 January 1988, bilateral or multilateral tax conventions, or tax information exchange agreements to which Belgium is a party.
Master file and local file
Belgian companies that are part of a multinational group if the financial statements for the previous year show that they meet one of the following criteria must keep a master file and a local file:
- its gross operating and financial revenue (excluding non-recurring items) is EUR 50 million;
- its balance sheet total is EUR 1 billion;
- it has 100 employees (in full time equivalents per year
The master file or group file is an overview of the multinational group: the nature of its business activities, its intangible assets, the intragroup financial activities, the consolidated financial and tax position of the group, its general transfer pricing policy and the worldwide allocation of income and economic activities in order to support the tax authorities when they assess transfer pricing risks.
The master file must be filed with the Belgian tax authorities within twelve months following the end of the financial year.
The local file must be filed with the tax return. It gives general information on the local entity and contains a detailed form with the transfer pricing analysis of transactions in excess of EUR one million between any business unit of the local entity and the overseas entities of the group. In particular, these forms give information about the relevant financial information of the transactions, the comparability study, the selection and the application of the most appropriate transfer pricing method.
The new rules will apply to financial years starting on or after 1 January 2016.
Extension of the reporting obligation for payments to tax havens
Since 2010 Belgian companies and permanent establishments of foreign companies must report in their annual tax return all (direct and indirect) payments they have made to tax havens (art. 307 ITC 1992) for a total of EUR 100,000 or more. If they are not reported, these payments are not tax deductible. When reported, such payments are only tax deductible if the taxpayer can justify that the payment was made in the context of an actual and genuine transaction with persons other than artificial tax avoidance schemes.
The law defines as tax havens, in the first place, non-compliant jurisdictions, i.e. jurisdictions that are considered by the OECD Global Forum on Transparency and Exchange of Information as not having effectively or substantially implemented the OECD exchange of information standard.
While in the past the jurisdiction had to be non-compliant during the entire year in which the relevant payment(s) were made, the rule is adapted to say that payments should be reported if they were made in the course of the period during which the jurisdiction was non-compliant.
The second category of tax havens are jurisdictions that have no tax or a low tax. The threshold was set at a nominal corporate tax rate of 10% (art. 179 RD/ITC 1992) and a list of these states was adopted by Royal Decree of 6 May 2010 (see Doc 2010-2090). This definition is now extended to countries outside the European Economic Area which (1) do not levy corporate income tax on domestic or offshore income, (2) that have a nominal corporate income tax rate under 10 %, or (3) with an effective corporate tax rate on foreign income under 15%. The definition of “jurisdiction” is extended to subdivisions of States that have an autonomous competence to levy corporate income tax.
The new rules also apply to payments to permanent establishments located in such jurisdictions, to bank accounts managed by or held with individuals or permanent establishments located in such jurisdictions or to accounts managed by or held with credit institutions in such jurisdictions or by their permanent establishments located in such jurisdictions.
The new rules will apply as of 14 July 2016.
New penalties for failure to report legal arrangements
In 2015, Belgium introduced a transparency or "look-through" tax for legal arrangements such as trusts and trust-like arrangements and for other legal arrangements that have legal personality. The founder or the sponsor of such legal arrangement is taxed on the income of the legal arrangement as if it was his personal income, unless a beneficiary has received the income. Moreover, when the original founder dies his heirs must report the income of the legal arrangement.
The founder (or his heirs) must report the income and identify each legal arrangement ; the law introduces a penalty of EUR 6,250 for every arrangement that is not reported in the tax return.
Statute of limitation for assessing the tax
The statute of limitations for income tax is three years. That means the tax authorities must issue the tax assessment within three years starting on 1 January of the tax year. For income relating to 2013, the tax year is 2014 and the tax has to be levied within a period of three years ending on 31 December 2016. For companies, the tax year starts on the first day following the end of the accounting period. If the accounting period ends on 30 June 2013, the tax year starts on 1 July 2013 and the tax must be assessed before 30 June 2016.
That period is extended with four years in case the tax authorities have indications that the taxpayer has omitted to declared his income, either with fraudulent intent or with the intention to harm the interests of the treasury.
The tax authorities have another extension of time frame to assess the tax when they obtain information from their colleagues in another country following a local audit or investigation. However, that extension was not available if information was received as a consequence of the spontaneous information exchange between tax authorities. This extension is now also available if information is obtained as a consequence of the exchange of information based on double tax treaties and other instruments (multilateral agreements, tax information exchange agreements, EU Directives, the common reporting standard FATCA etc.).
If that information shows that a taxpayer has not reported taxable income in one of the five past calendar years, the tax can still be assessed tax during a period of twenty-four months from the day they receive the information (for prior coverage see Doc 2006-15591). Moreover, in cases of tax fraud, this period of five years is extended to seven years.
A corresponding adaptation is made to the rules on the statute of limitations in the VAT Code.
VAT on online betting and gambling
Electronic betting and gambling was exempt from VAT. With effect from 1 August 2016, VAT will be due on online betting and gambling (with the exception of lotteries).
The minimum excise duties on tobacco will be increased. The increased excise duties for diesel and alcohol that took effect on 12 December 2015 are inserted in the excise duties legislation. Moreover, the government also reintroduces the so-called “cliquet” system. This allows the government to monitor excise duties and increase the excise duties when the official oil prices drop. The excise duty rates will be adapted indexed on 1 January 2017 and 2018. These measures enter into force as of 1 July 2016.
Brussels, 11 July 2016
De Broeck Van Laere & Partners