On December 22, 2017, the Belgian parliament approved the legislation implementing the corporate tax reform. It was published in the Belgian Official Gazette on December 29, 2017. As the Belgian corporate tax reform has been enacted before December 31, 2017, companies will need to consider the new measures for the determination of their deferred tax position under IFRS or USGAAP for the reporting periods closed as of 31 December 2017.
The highlight of the corporate tax reform is the reduction of the corporate tax rate which will be realized in two phases.For large companies, the corporate tax rate is reduced from 33,99% to 29,58% (including crisis contribution - lowered from 3% to 2%) as from assessment year 2019 and will be 25% (abolishment of crisis contribution) starting assessment year 2021.
For SMEs, the rate goes down to 20,4% (including crisis contribution of 2%) on the first bracket of 100.000 EUR of net taxable income as from assessment year 2019 and will be 20% (abolishment of crisis contribution) starting assessment year 2021. This SME rate will only apply if a.o. a minimum salary of at least 45.000 EUR is paid to a company director (individual). However, SMEs usually do not report in IFRS or USGAAP.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates/laws that have been enacted or substantively enacted by the end of the reporting periods.
Both IFRS and USGAAP determine that deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, and this based on the tax rates that have been (substantively) enacted by the end of the reporting period.
Companies will consequently be required to adjust their deferred tax assets and liabilities according to the two new future tax rates: 29,58% will have to be applied on temporary differences that are expected to reverse in assessment years 2019 and 2020 (taxable periods starting on or after January 1, 2018 and 2019) and 25% on temporary differences that are expected to reverse as of assessment year 2021 (taxable period starting on or after January 1, 2020).
A minimum tax base will be introduced for companies with a taxable profit that exceeds 1.000.000 EUR via the limitation of certain deductions, such as tax losses carried forward, dividend received deduction carried forward, … Those deductions will only be deductible up to 70% of the taxable profit exceeding 1.000.000 EUR.
As a consequence, companies will need to re-assess the use of these tax attributes and the recognition of the related deferred tax assets (or the related valuation allowance under USGAAP).
The notional interest deduction has been reformed and will as of assessment year 2019 only be calculated on the additional equity of the year (capital increases + retained earnings) and no longer on the total equity. In order to temper fluctuations it will be calculated on the average increase of the equity over a period of 5 years.
As a result of the reform of the notional interest deduction, future taxable income may be higher than the forecasted one under current tax law which may impact the future use of tax attributes.
Starting assessment year 2020, the implementation of the tax consolidation regime will impact the use of tax attributes and will require a re-assessment of the use of these tax attributes and the recognition of related deferred tax assets.
The necessary disclosures regarding the impact of the tax rate change will need to be made both under IFRS and USGAAP in the first (interim) reporting period during which the tax rate change was (substantively) enacted. Under USGAAP, the entire impact of the change in tax law would need to be reflected directly in income tax expense (income) from continuing operations regardless where the deferred tax was originally accounted. Under IFRS, the impact of a change in tax rates is recognized as income tax expense or income and included in profit or loss for the period, except to the extent that the tax arises from transactions or events that are recognized outside of profit or loss (other comprehensive income or equity), in which case the related tax amount is also recognized outside of profit or loss.
As of assessment year 2019, provisions for risks and charges will only be tax exempt if they result from a contractual and legal/ regulatory obligation existing at closing date of the reporting period.
Deferred tax assets will have to be set up as of the reporting period starting on or after January 1, 2018 for any temporary book to tax difference resulting from the taxation of provisions for risk and charges.
New interest deduction rules
As of assessment year 2021, the deduction of the net interest incurred on loans concluded as of June 17, 2016 will be limited to the highest of either EUR 3 million or 30% of EBITDA. The net interest which cannot be deducted because of the limit can be transferred to the following years without any time limitation. A deferred tax asset will have to be set up for the interest expenses that can be carried forward and deducted from future taxable income.
On the other hand, companies may need to consider that future taxable income may be higher than the forecasted one under current tax law due to the interest deduction limitation, which may impact the future use of tax attributes.
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