The Belgian Government Di Rupo I has introduced various new tax measures. These tax measures follow an earlier set of tax rules that have been introduced end of December 2011.
After long discussions, the Government and Parliament have now finally agreed on a second set of tax measures, enacted through the Programme Law of March 29th, 2012, which was published in the Belgian Official Gazette on April 6th, 2012 and through a preceding Royal Decree of February 23rd, 2012 which was published in the Belgian Official Gazette on February 28th, 2012.
BENEFITS IN KIND OF FREE HOUSING, ELECTRICITY AND HEATING
The taxable benefit in kind related to the free disposal of housing facilities enjoyed by a company director has almost doubled.
Indeed, as of January 1st, 2012 the taxable benefit for a non-furnished property with a “deemed rental income” (“kadastraal inkomen” / “revenue cadastral”) exceeding 745 EUR is calculated on the basis of: 100/60 x deemed rental income x 3.8 (instead of “2”, the factor applied before).
Also the taxable benefit in kind of the free supply of electricity and heating to company directors has increased to 910 EUR for electricity and 1,820 EUR for heating (Royal Decree of February 23rd, 2012).
CAPITAL GAINS ON SHARES REALIZED BY COMPANIES
Until recently, capital gains on shares were fully exempt from corporate income tax, provided that certain conditions are fulfilled. The most essential condition is the “subject to tax condition” as applicable in the dividend deduction rules, meaning that the distributing company has to be a legal entity subject to a normal corporate income tax regime. Other specific rules apply as well and need to be verified on a case-by-case basis (for instance, dividends distributed by offshore companies, as a general rule, do not qualify for the exemption).
However, the capital gains exemption rules did not provide a minimum detention period for the shares. As a result, Belgium has been a popular tax haven for international transactions seeking a short term tax free realization of capital gains on shares.
The new rules on the capital gains exemption on shares still include the same conditions, but provide as a new and additional condition that the shares of the subsidiary must be held by the selling company for an uninterrupted period of at least one year, in order to benefit from the tax exemption.
In case the one year period is not fulfilled, and provided that the concerned shares in principle do qualify for the exemption, the capital gain will be taxable at a special rate of 25% (to be increased by the “crisis” tax, bringing the effective rate to 25.75%).
If the “subject to tax condition” is not met, the capital gain will be taxable at the normal Belgian corporate income tax rate (standard rate is 33.99%).
A special capital gains tax regime is introduced for professional trading companies.
DEBT-EQUITY RATIO
Belgian tax law already provided for a debt-equity ratio of 7:1 for interest on loans paid to companies incorporated in tax havens or subject to a particularly favorable tax regime. As a result, the interest related to that part of the loan which exceeded 7 times the debtor’s qualifying equity (= the sum of the retained earnings at the beginning of the taxable period and the paid-up capital at the end of the period), was not tax deductible.
The new debt-equity ratio has been set at 5:1 and is now also applicable on interest on loans granted by group companies. As a result, interest on intra-group loans exceeding 5 times the equity of the debtor company, will no longer be tax deductible.
Various exceptions to this new debt-equity ratio will apply (e.g. public bonds, certain types of leasing companies).
Please note, however, that the new debt-equity ratio has not yet entered into force because of some unresolved issues. A Royal Decree will determine the effective date, which would be at the latest on July 1st, 2012.
NEW ANTI-ABUSE RULE
Without any doubt the most “notorious” new tax rule, concerns the substantially modified article 344, § 1 of the Income Tax Code or the so-called “anti- abuse” rule.
The new anti-abuse rule provides that a legal act or series of legal acts is/are not binding upon the tax authorities if the tax authorities can demonstrate that “tax abuse” has been committed.
Tax abuse is defined as a transaction or a series of transactions, whereby the taxpayer avoids taxes or claims a tax benefit, contrary to the objective of the legal provision introducing the tax avoidance or tax benefit.
The tax authorities may prove the existence of tax abuse by all legal means (through presumptions or any other acceptable means of evidence, except for the oath) and on the basis of “objective” circumstances. When such “objective” circumstances can be demonstrated by the tax authorities, the burden of proof is shifted to the taxpayer who needs to demonstrate the existence of underlying non-fiscal “subjective” motives for his act(s).
In the Belgian press, the new provision is referred to as a “bazooka”, as various tax specialists believe that the tax authorities could from now on “attack” almost any transaction or act which is essentially tax driven, even if the taxpayer has respected all tax and legal consequences and has not simulated any deeds or acts for tax purposes. Many believe that the new provision may even violate the principle of “legality” (i.e. the principle that any taxation should be based on a clear and specific rule of law).
The Minister of Finance has attempted to bring some peace in this debate by confirming in Parliament that in practice not much would change compared to the existing anti-abuse rules. At the same time, however, the Minister refused to give specific examples of legal acts or deeds that would be threatened by the new anti-abuse rule. It can therefore not be excluded that the new anti-abuse provision will create - even more than before – legal uncertainty and inevitably cause long and tenacious disputes with the tax authorities.
Moreover, the same anti-abuse provision is also introduced for registration duties (article 18 of the Registration Duties Code).
We believe that the most safe tax conduct or behavior from now on will need to be based on serious economic or financial business motives, as any purely tax driven structuring of deals will be more severely targeted by the tax authorities.
The new anti-abuse rule applies as of tax year 2013 (i.e. income year 2012 for individuals and corporations with an accounting year equal to the calendar year) as well as to any legal acts carried out during tax year 2012 provided that the accounting year closes as from the 6th of April 2012 on.
For the registration duties, the new anti-abuse rule will apply to all legal acts or series of legal acts carried out as of June 1st, 2012.As in many other countries, the Belgian budget is under pressure and the Government is in desperate need of additional funding. Resultantly, one may expect that the Belgian Government will be obliged to take even further action in the course of the coming year(s).
OTHER TAX NEWS: COMPETENCE TO TAX
Fiscal residency
Recent jurisprudence reconfirms the importance of the correct interpretation and of the substance requirements for the “permanent home” condition.
For several years already, the Belgian tax authorities are reviewing the tax situation of “artificial” set-ups of “frontier workers” schemes. Also recently, the Court of First Instance of Arlon ruled that a person could not qualify as having his “permanent home” in the French frontier zone, since all relevant elements of his personal situation were not consistent and indicated that the person concerned had always kept his “centre of vital interests” in Belgium and therefore could not benefit from the frontier worker status.
The case before the Court of Arlon clearly shows that for proving the actual tax residence or “permanent home”, it is not only important to demonstrate that various administrative formalities are complied with , but also that the effective “ centre of vital interests”, considering both the personal as well as the professional situation, indeed is located in Belgium. The Court stated that all factual elements should be consistent, e.g. phone bills, electricity bills, bills for buying gas or food supplies, etc.
The latter jurisprudence does not only relate to the actual frontier worker status, but is equally relevant for other residency status disputes, certainly in view of the latest wealth tax announcements in France. Migrating to Belgium- to escape French income and wealth taxes - therefore needs to result in the actual transfer of the “centre of vital interests” to Belgium. Often the most difficult obstacle to deal with in order to realize an effective migration to Belgium is the sale or disposal of the family home in France.
Work State
As for the tax residency analysis, the Belgian tax authorities also increasingly submit the criteria for determining the “work state” (article 15 of the OECD Model Convention) to an actual “substance” test, whereby they dedicate more importance to the factual elements of the taxpayer’s specific working situation.
As a general rule, employees are taxable in the state where they exercise their employment.
If an employee works both in Belgium and in another state – provided that state signed a Double Tax Treaty with Belgium-, the employee is taxable in both states in accordance with his work performed in each state, as such creating a salary split. In some cases, by applying the so-called 183 days-rule, his income may be attributed solely to his “residence state” provided a.o. that the employee’s working days in the other state do not exceed 183 days per year.
In a recent case before the Court of Appeal in Brussels, a Belgian resident claimed such salary split, as he worked partially for a Belgian company – in Belgium – and partially for a Luxembourg company – in Luxembourg.
The Belgian tax authorities – followed by the Court of Appeal of Brussels – disagreed that part of the taxpayer’s salary was subject to Luxembourg taxation (and exempted in Belgium) since the employee could not sufficiently prove his actual presence and the actual exercise of his employment in Luxembourg.
This case law demonstrates that it is essential – both for Belgian employees working abroad, as for foreign employees working in Belgium – to demonstrate and collect specific elements of proof regarding their employment outside their residence state, e.g. by travel tickets, restaurant bills, gas tickets, rental payments for hotels, apartments, other types of spending, …
The latter jurisprudence confirms once more that it does not suffice to dispose only of an employment contract with a foreign company to be able to benefit from a salary split.