By Geoffroy Galéa, Of Counsel and Head of the Tax Practice, Fieldfisher, Brussels
On 30 September, Belgium’s so-called “Vivaldi coalition” reached an agreement to form a government.
Vivaldi’s future symphony takes the form of an 84-page declaration of intent, articulated around the key words: “prosperity”, “solidarity”, and “sustainability”.
The Vivaldi agreement includes tax policy: both short-term tax stimuli and long-term initiatives. It also expresses the new Belgian coalition’s position with respect to the OECD-led effort to overhaul the international system in response to digitalization.
Short-term tax stimuli
Two key short term measures are envisaged by the new Belgian agreement.
On the one hand, the agreement considers a measure that would allow Belgian corporate taxpayers to temporarily exempt taxable profit relating to tax years 2022 to 2024.
This measure should improve Belgian corporate taxpayers’ solvency position.
Technically, this exemption should take the form of a tax-free “recovery reserve” in the tax return, decreasing the taxable profit of related tax years to the same extent.
Before its withdrawal, such a “recovery reserve” was included in a draft law deposited with the Parliament on 5 June. We commented on this draft law in a previous MNE Tax article.
The “recovery reserve” would become (partially) taxable for corporate taxpayers, substantially reducing their salary costs or performing equity distributions.
Furthermore, companies linked to “tax havens” or that make payments without a business purpose would be excluded from the benefit of this regime.
On the other hand, the increased investment deduction for small and medium enterprises (SMEs) corresponding to 25% of a qualifying investment is extended two years.
Hence, SMEs may still claim this increased investment deduction for qualifying investments made in 2021 and 2022.
Long-term tax measures: no new taxes, except…
The agreement states that “no new taxes will be introduced except in the framework of the budgetary discussions.” That said, the Vilvaldi’s partition includes a set of ambitious international and local tax notes…
Belgium will constructively and proactively defend the international implementation of the OECD’s Pillar Two proposal (GLoBE), aiming at establishing minimum income taxation of multinationals and fighting against specific beneficial tax regimes, the agreement states.
Fortunately, the agreement goes on to specify that while ensuring that the minimum tax is implemented, the Vivaldi coalition will also ensure the competitiveness of certain key sectors of the economy.
More generally, the agreement indicates that Belgium would support the implementation of the OECD’s recommendations in European law.
The agreement also states that Belgium would initiate the discussions at OECD/EU levels concerning a future digital services tax.
With this statement, Belgium aims at implementing as soon as possible a tax on the giants active in the digital sector (the GAFAs) where value is effectively created (i.e., where users are located).
In that respect, the new government even adds that if an agreement at OECD/EU level cannot be reached, Belgium will unilaterally introduce a digital services tax (DST) in 2023.
It has to be noted that, on 10 July 2019, a proposal (French / Dutch) for a Belgian DST was deposited with the Parliament. This proposal aimed at taxing digital giants’ qualifying activities in Belgium at a rate of 3%.
Furthermore, the government intends to substantially overhaul the rules governing personal income taxation. Its aim is to make these rules more modern, simple, fair, and neutral.
This reform should notably imply a reduction of labour taxes, a shift from alternative rewards (e.g., luncheon vouchers) to rewards in cash, and a broadening of the taxable base.
The agreement also states that “The Government will seek a fair contribution from those individuals with the greatest contributing capacity, with respect for entrepreneurship.”
Based on press releases and interviews from government representatives, this statement could be interpreted as a proposal for a tax on securities accounts with a minimum value of at least EUR 1 million.
Finally, the agreement includes specific measures aimed at combatting tax fraud. These measures include, notably, the end of the tax amnesty procedure by 2023 and the possibility for the tax authorities to base their targeted audits (i.e., data mining) on taxpayers’ yearly bank account balance.
The key tax notes of Vivaldi’s upcoming symphony are very broad, and it is currently difficult to foresee what will be their exact tone.
Although the orchestra conductor promised that his symphony should not include minor tax notes, we have seen that he pursued this crescendo by suggesting a potential overhaul of the Belgian tax (and economic) harmony.
For example, the statement concerning the GLoBE proposal is particularly important as the implementation of a minimum tax in Belgium may significantly affect the investment attractiveness of small economies such as Belgium (whereas the largest economies are expected to benefit from such measure).
It is therefore surprising that a country like Belgium, which is often required to propose specific tax regimes to attract foreign multinationals (which, in turn, provide jobs), would “constructively” and “proactively” defend a measure that may have a huge negative impact on its very own economy.
The consolation prize is this last sentence specifying that Belgium would preserve the competitiveness of its key sectors.
Until the curtain goes down, let’s hope for the best and prepare for the worst.
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