Belgian Corporate Tax Reforms 2018-19

Abstract

Corporations are a vehicle for shareholders to indirectly operate business and hopefully make profit. Corporate income tax is a convenient way for the various jurisdictions to indirectly collect tax and derive revenue from such profits when the business is operated with a relevant territorial nexus, without uncompetitively deterring those businesses from acquiring that nexus nor condoning abuse.

In a changing business environment and in fluctuating competitive conditions between the jurisdictions, corporate income tax has to evolve. Belgium has done so; we will outline the initial position and describe the evolutions.

The focus of international tax competition between states is clearly shifting. Complicated and not transparent niches are under fire from BEPS and ATAD and are getting out of fashion.

To increase its international competitiveness, Belgium needed a lower nominal rate, a tax consolidation regime,  and a 100% dividend received exemption. Those measures are of a nature to decrease revenue.

The government took a few measures to try and increase the tax base, spectacularly by capping carry forwards, and otherwise essentially by correcting technical anomalies and by nearly doing away with NID. it however seems that the government rather hopes for a growth of the tax base due to improving economic conditions, notably thanks to a “reflex effect” of the tax cuts. In the meantime, the budget deficit is likely to increase.

The exemption conditions of capital gains on shares, now aligned on the dividend received exemption, will not hurt typical MNEs.

Simplification was only paid lip-service even though the finance minister was journalist by profession and was thus not suspect of willingly supplying work to the noble trade of tax lawyer.

ATAD compliance was clumsy on some topics but unconvinced on other ones. That is understandable, since ATAD may be analysed as a move by large EU countries to deprive smaller ones of – harmful? - competitive advantages when vying for MNEs’ investment. That ATAD implementation will hurt MNEs, but should not hamper international competitiveness too much, since it will occur Europe-wide.  

The really smart policy move for the EU could be to capture MNEs’ broadly untaxed profits through a kind of CCCTB that would benefit directly the EU budget.