Belgium has adopted anti-hybrid rules in line with the EU Anti-tax Avoidance Directive (ATAD 1 and 2), effective from financial years commencing on or after 1 January 2019. The rules target all income flows between associated parties, whereby a mismatch in the tax treatment of legal entities or financial instruments leads to either:
- A double deduction of expenses for a Belgian company (or Belgian permanent establishment) and a foreign associated enterprise; or
- A deduction for the payer without the inclusion of income in the hands of the recipient.
A hybrid entity is defined as any entity or arrangement that is regarded as a taxable entity under the laws of one jurisdiction but is treated as a transparent entity under the laws of another jurisdiction.
A hybrid transfer is defined as a transfer of a financial instrument whereby the underlying return on the financial instrument is regarded as derived by more than one of the parties to the arrangement.
If a mismatch arises, it is neutralized by:
- Disallowance of deduction of expenditure under the hybrid arrangement to the extent that the corresponding income is not included in the tax base or is deducted twice; and
- Inclusion of the income arising from hybrid arrangement as taxable income to the extent that it is deductible for the payer.
The rules also cover specific cases such as imported hybrid mismatches and tax residency mismatches.
Effective from 1 January 2019, Belgium has introduced exit tax rules in line with the EU Anti-Tax Avoidance Directives (ATAD) on the unrealized value of assets to be considered as taxable income as prescribed under the Act (see Sec. 11.1.).
In line with the EU directive on mutual administrative assistance, Belgium has adopted various measures in its domestic laws to enable the exchange of information on cross-border tax rulings and advance pricing agreements (APAs) beginning from 1 January 2017. Information is also exchanged on the following rulings, and APAs issued prior to that date:
- Rulings and APAs issued, amended or renewed between 1 January 2012 and 31 December 2013, if still valid on 1 January 2014; and
- Rulings and APAs issued, amended, or renewed between 1 January 2014 and 31 December 2016.
Belgium has adopted measures to implement the automatic exchange of financial account information with EU Member States pursuant to Council Directive 2014/107/EU of 9 December 2014, which synchronized EU rules with the global standard for exchange of information developed by the OECD under the Common Reporting Standard (CRS). Belgium is also a party to the OECD Mutual Assistance Convention and the related Multilateral Competent Authority Agreement and as such exchanges financial account information under CRS with qualifying non-EU countries. Finally, Belgium concluded an Intergovernmental Agreement (IGA) with the U.S. for the implementation of the U.S. Foreign Account Tax Compliance Act (FATCA).
Belgium implemented the EU Council Directive, which requires the reporting of cross-border tax planning arrangements and mandatory exchange of information with the other EU Member States (DAC6). The reporting requirement primarily applies to intermediaries that design, market, organize, or manage the implementation of a reportable arrangement that includes prescribed hallmarks. However, the reporting requirements may also be shifted to the taxpayers in certain cases, including where a reportable arrangement is designed in-house, or an intermediary is unable to report due to legal professional privilege obligations.
The requirements apply from 1 July 2020, with the disclosure of the reportable arrangements to be made within 30 days from the date when the arrangement is made available for implementation or is ready for implementation or where the first step to implementation has been carried out, whichever earlier. The initial disclosures will, therefore, be due from 31 July 2020 (i.e., 30 days following the effective date of 1 July 2020). However, reportable arrangements made during the period 25 June 2018 to 30 June 2020 are required to be reported by 31 August 2020.
Failure to comply with the reporting requirements may result in the following penalties, depending on intent:
- For incomplete submission of information, not committed with fraudulent intent or intent to harm:
- first offense - EUR 1,250;
- second offense - EUR 2,500;
- third offense - EUR 5,000;
- fourth offense - EUR 10,000; and
- subsequent offenses - EUR 12,500.
In cases of fraudulent intent, the penalties are doubled.
- For non/ late submission of information, not committed with fraudulent intent or intent to harm:
- first offense - EUR 5,000;
- second offense - EUR 12,500;
- third offense - EUR 31,250; and
- subsequent offenses - EUR 50,000.
- For non/ late submission of information, committed with fraudulent intent or intent to harm:
- first offense - EUR 12,500;
- second offense - EUR 37,500; and
- subsequent offenses - EUR 100,000.
Due to the COVID-19 pandemic, the EU Council adopted an amendment to the directive whereby the Member States may opt to defer the reporting under DAC6 by up to 6 months. Belgium has adopted the deferral option and is postponing the reporting requirements as follows:
- Reportable arrangements, the first step of which was implemented between 25 June 2018 and 30 June 2020, was due by 28 February 2021 (instead of 31 August 2020);
- The 30-day period for reporting other arrangements began from 1 January 2021 for reportable arrangements originally to be declared from 1 July 2020. However, due to communication difficulties resulting from the pandemic, administrative tolerance was granted for arrangements that had to be reported in January and February 2021 provided that the arrangements were reported by 28 February 2021. Late submission penalties were not be imposed during this period; and
- The initial quarterly report on marketable arrangements was due by 30 April 2021.
Tax havens are:
- Jurisdictions that were identified as not meeting the OECD standard for information exchange by the Global Forum on Transparency and Exchange of Information for Tax Purposes;
- Jurisdictions with no or low (nominal rate less than 10% or effective corporate tax rate below 15%) taxes; and
- Effective 1 January 2021, jurisdictions specified in the EU list of non-cooperative jurisdictions.
Belgium's list of tax haven jurisdictions has been modified through various Royal Decrees multiple times since its initial release. The latest consolidated tax havens list applicable for the year 2022 includes the following jurisdictions:
|Abu Dhabi (UAE)||Ajman (UAE)||American Samoa|
|British Virgin Islands||Cayman Islands||Dominica|
|Dubai (UAE)||Fujairah (UAE)||Fiji|
|Guatemala||Isle of Man||Jersey|
|Marshall Islands||Micronesia (Federation of)||Monaco|
|Panama||Pitcairn Islands||Ras Al-Khaimah (UAE)|
|Sharjah (UAE)||Sint Maarten||Somalia|
|Trinidad and Tobago||Turkey||Turkmenistan|
|Turks and Caicos Islands||Uzbekistan||U.S. Virgin Islands|
|Umm Al Quwain (UAE)||Vanuatu||Wallis and Futuna Islands|
Among the above, the following jurisdictions are listed by the EU as non-cooperative, which are considered as tax havens effective from 1 January 2021 (the list is as on 12 October 2021):
|American Samoa||Barbados (removed effective 26 February 2021)|
|Dominica (removed effective 12 October 2021)||Fiji|
|Seychelles (removed effective 12 October 2021)||Trinidad and Tobago|
|The US Virgin Islands||Vanuatu|
Effective 1 January 2010, Belgium introduced a reporting requirement (Article 307, §1, s. 3 ITC) and a related tax deduction denial for unreported payments or payments lacking underlying bona fide business purposes (Article 198, 10° ITC). On 20 December 2021, a revised Circular no. 2021/C/112 was published which updated and replaced Circular No. Ci.RH.421/607.890 of 2010 and its amendments regarding the reporting requirements. See Sec. 6.5 for details.
Interest, royalties, and fees for services paid by a resident company, directly or indirectly, to a non-resident company or a permanent establishment located abroad are not deductible if the recipient is resident outside the EU and:
- Is not subject to income tax; or
- Is subject to an income tax regime which is considerably more favorable than that of the resident company (Art. 54 ITC).
This, however, does not apply if the taxpayer shows that the transaction is real and genuine and that the payment does not exceed a normal amount.
The tax authorities must specifically prove that the company to whom the alleged non-deductible payments are made, is indeed subject to a substantially more advantageous tax regime as compared to the Belgian regime for similar types of income (Court of Appeal of Brussels, 26 January 2005; FiscalNet, civbxl.20050126-200212767-a).
The sale, transfer or contribution of shares, bonds, claims, patents, trademarks, processes or cash to any non-resident taxpayer who:
- Is not subject to income tax; or
- Is subject to an income tax regime which is considerably more favorable than that of the resident company, may be disregarded by the tax authorities (Art. 344(2) ITC).
However, the taxpayer may show either that the transaction corresponds to legitimate business needs, that the payments are not excessive, or that he received a real consideration producing an amount of income subject to a normal tax burden in Belgium, comparable to the tax which would have applied in the absence of a transfer.
Abnormal or gratuitous advantages granted by a resident company to resident or non-resident individuals or companies must be added back to the income of the company unless the advantage is taken into consideration in determining the taxable income of the beneficiary (Art. 26 of the ITC). In the case of advantages granted to non-resident related persons or to non-residents (including unrelated persons) located in tax haven jurisdictions, the recapture is mandated whether or not the advantage is taxable abroad in the hands of the beneficiary.
The tax authorities must prove the existence of the advantage as well as its abnormal or gratuitous character. They are not required to prove fraud or an intention of fraud or of tax-avoidance.
On 31 January 2010, the European Court of Justice (ECJ) in Société de Gestion Industrielle (SGI) v. état belge, (C-311/08), held that this provision is, in principle, compatible with the freedom of establishment. The ECJ held that the freedom of establishment must be interpreted as not precluding, in principle, legislation of a Member State, under which a resident company is taxed in respect of an unusual or gratuitous advantage where the advantage has been granted to a company established in another Member State with which it has, directly or indirectly, a relationship of interdependence, whereas resident companies cannot be taxed on such advantage where the advantage has been granted to another resident company with which it has such a relationship.
A resident company receiving, directly or indirectly, abnormal or gratuitous advantages referred to above is not allowed to deduct from these advantages otherwise deductible gifts, the part of the investment deduction that exceeds the taxable profits, exempt dividends and losses carried forward if the company is directly or indirectly dependent on the company granting such benefits (Art. 207 ITC). Such deduction is also not allowed from the taxable base of a special separate assessment resulting from non-recorded costs and from profits to be distributed under an employee stock option plan.
Belgium has launched the ultimate beneficial ownership (UBO) register as per the EU Anti-Money Laundering Directive.
Resident companies, associations, foundations, and trusts are required to submit the required information on beneficial owners by 31 March 2019, which was extended to 30 September 2019, however, penalties will not be imposed if the registration is completed by 31 December 2019. Further, administrators are required to transmit the information on the beneficial owners by way of electronic means to the UBO register in a month. Ultimate beneficiaries include individuals that directly or indirectly hold at least 25% of the capital or voting rights of the entity or otherwise exercise ultimate control.
The UBO information is required to be updated at least annually. Failure to submit the required information or the submission of incorrect information may result in both administrative and criminal penalties.
The obligation to exchange ultimate beneficial ownership information between EU Member States is extended to jurisdictions outside the EU effective from 22 March 2019, provided that there is a legal basis for such exchange (e.g., a tax treaty with exchange of information provisions).