The tax focus of Belgium’s current government, elected in May 2014, continues to be on job creation and economic growth. With salary costs in Belgium becoming prohibitively high relative to its neighbors, Belgium is seeking to reduce its reliance on tax revenue from labor and to increase revenue from other sources (e.g. energy and natural resource companies, consumption taxes). In a tax mix shift implemented at the end of 2015, the government reduced social security contributions and individual income taxes for employees and the self-employed to stimulate employment, and introduced additional incentives for investment and innovation. Indirect taxes and taxes on financial incomefor individuals were increased.

The fight against tax fraud — a key responsibility of Belgium’s Minister of Finance — remains a high priority. The government has just agreed on a corporate tax reform which reduces the corporate tax rate from 33.99 percent to 29.58 percent as from 2018 and 25 percent as from 2020.

As a founding member of the OECD, Belgium has fully supported the BEPS initiative but has not been an early adopter. So far, Belgium has implemented some specific anti-BEPS measures in direct response to the OECD project. Certain anti-abuse rules to safeguard the tax base of individuals and corporations against aggressive planning have existed for quite some time. Recently, the government has taken more steps that are in line with the spirit of the OECD BEPS project.

Specific anti-abuse rules backed by a GAAR have been in place for decades. Interest, royalties and service fees paid to tax havens are not deductible unless the taxpayer can prove that the expenses are connected to transactions actually carried out and do not exceed normal limits. Under the GAAR, a transaction as a whole cannot be invoked against the tax authorities if the authorities demonstrate by presumptions or any other evidence that fiscal abuse is one of the transaction’s main drivers.

Recent years have seen significantly stepped-up audits aimed at detecting international tax fraud. About 100 specialized auditors have been allocated to this area, and this centralized team is steering the audits of large multinationals across Belgium.

Current BEPS trends in Belgian tax rules and practice are asfollows:

• Tackling offshore regimes: The previous government introduced a rule requiring individuals to report on their tax returns whether they are the founder or beneficiary of legal constructions such as trusts, foundations and foreign low-taxed entities, as of assessment year 2014. The current government has gone a step further with its so-called ‘Cayman tax’. Under this transparency tax, income received by the legal construction is taxable to the resident individual/ legal entity that is the founder of the legal construction, as if the founder had received the income directly. The tax does not apply if the founder or beneficiary can demonstrate that the low-taxed entity’s income is effectively taxed at a rate of at least 15 percent or, under certain conditions related to the possible exchange of information, that the legal construction has genuine activity and economic substance. The latter exemption is not applied automatically but should be requested each year in the tax return.
• Tax haven transparency: In an effort to tackle the improper use of tax havens, Belgian tax law requires companies to report payments exceeding EUR100,000 to recipients based in a tax haven. A ‘tax haven’ is defined as any country outside the European Economic Area (EEA) with a nominal level of corporate taxation below 10 percent (recently extended to any country where companies are not subject to corporate tax on domestic or foreign income or with an effective corporate tax rate on foreign income below 15 percent), or any jurisdiction on the OECD blacklist. Payments made to such jurisdictions already indicate potential aggressive or abusive transactions and thus facilitate tax audits.
• Thin capitalization: Designed to address interest deductibility, Belgium’s recently amended thin capitalization rule imposes a 5:1 debt-to-equity ratio limit. Finance charges are deductible provided they are at arm’s length and the loan does not exceed 5 times the sum of the taxed reserves and paid-up capital. The rule applies to finance charges paid to tax havens and between group companies.
• Fair share of tax: Targeting large Belgian companies and Belgian establishments of large foreign companies, the so-called ‘fairness tax’ introduced in 2013 is due if a company distributes dividends but pays little or no tax on them because of overuse of ‘bad’ deductions (losses carried forward, notional interest deductions). ‘Good’ deductions (participation exemptions, patent income deductions, investment deductions) do not trigger the fairness tax. The fairness tax rate is 5.15 percent, and the tax is payable on top of the standard corporate income tax. The Court of Justice of the European Union recently found the fairness tax partly incompatible with EU law. The Belgian Constitutional Court will soon also pronounce on the legality of the fairness tax.
• Transfer pricing audits: Belgium’s tax administration established a small team of auditors specialized in transfer pricing to examine transfer pricing issues, with focus on intangibles, risk and capital. This team has been expanded, and training is being conducted in local tax offices with the goal of increasing local transfer pricing expertise and establishing satellite transfer pricing audit centers.
• Country-by-country reporting: Belgium recently introduced CbyC reporting requirements that comply with the OECD and EU provisions. Qualifying groups (with a consolidated gross turnover exceeding EUR750 million) will have to file CbyC reports with the Belgian tax authorities within 12 months after the closing of the group’s consolidated financial statements.
• Transfer pricing documentation: Belgium also introduced master file and local file transfer pricing requirements as of assessment year 2017 (i.e. financial years ending on 31 December 2016 or later) for each Belgian company or PE (of a multinational group) that satisfies one of the following thresholds (assessed on the basis of the non-consolidated financial statements of the Belgian company or PE for the preceding financial year):
  • combined operational and financial income of EUR50 million
  • balance sheet total of EUR1 billion
  • annual average of 100 full-time employees.
• Patent income deduction: The Belgian Parliament has approved a law modifying the Belgian patent income deduction regime. The law abolished the previous regime as of 30 June 2016, with a grandfathering period until 30 June 2021.
  
• Deduction for innovation income: A new patent box regime in line with the OECD’s modified nexus approach has been introduced: the ‘deduction for innovation income’:
  • The scope is broader than the previous deduction, which was limited to patents in the narrow sense. For example, software and utility models also qualify for the new deduction.
  • Only the net amount qualifies. The previous patent income deduction was calculated on the gross amount, with deduction for depreciation of acquired patents only.
  • A ‘tracking system’ has been introduced.
  • Qualifying expenses are increased by 30 percent.
  • Where the new deduction for innovation income applies, grandfathering for the income of the particular patent is not available.

The new regime took effect as of 1 July 2016.