Since the beginning of the COVID-19 outbreak, the Belgian government and legislator have introduced a series of financial support measures, including several related to tax.
As shown in the table below, the tax measures follow the economic curve of the crisis. The focus at first was on relieving the pressure on business cash flows. But it has since turned to recovery and fostering investments. More information on these measures can be found in our COVID-19: Global tax measures guide (PDF).
The most notable new tax recovery measures for businesses are the 'corona loss carry-back' and the tax exemption for post-corona reserved profits (the 'reconstitution reserve'). More information can be found in this briefing note.
Now that the series of 'first aid' tax measures seems to have come to a halt, the question arises what can be expected next on the tax front.
One trend that will likely spread further is the fact that several recent tax-recovery measures are made conditional on companies not having a link with a 'tax-haven company'.
As explained in more detail in this briefing note, the corona loss carry-back and the reconstitution reserve (as well as certain other recent measures) will not be available to companies that directly participate in, or make payments to, companies established in tax havens.
Several jurisdictions introduced this type of anti-abuse measure in response to the pandemic, although it appears that they have substantially different views on what constitutes a tax haven. (Most jurisdictions do not use the EU blacklist on non-cooperative jurisdictions as it is considered too narrow in scope.) In any case, taxpayers should be aware of the potential adverse implications of doing business in or with tax havens (such as non-deductibility of payments, withholding taxes, forfeiture of tax benefits or increased reporting obligations).
With government spending at record levels, we also expect that tolerance of aggressive tax planning and non-compliance will only decrease. And we expect more tax audits (including multijurisdictional ones), especially in the fields of transfer pricing, the substance of offshore entities (withholding tax claims) and the application of recent anti-tax avoidance measures.
Such audits will leverage the very extensive tax data that is automatically received from foreign tax administrations. The EU Commission is expected to announce very soon a proposal to integrate information from online platforms in the existing system on automatic exchange of tax information ('DAC 7'), based on the recent OECD Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy. This new reporting standard should ensure that tax administrations can access information on activities carried out through digital platforms, such as income generated by persons offering services (eg accommodation, transport and personal services) through such platforms.
As the economic cycle moves into its next phase, businesses may have to restructure their debts or enter insolvency proceedings. As a result, M&A activity – especially 'distressed M&A' – will likely increase significantly, with many of these transactions made even more complex by a 2018 Belgian tax rule under which only 70 per cent of the corporate tax base (above the first €1m) can be offset with carried-forward tax losses. Any taxable gains derived from such restructurings may thus not be fully offset against the tax losses that caused the financial difficulties in the first place.
Even if that tax cost can be mitigated to some extent by the newly introduced 'reconstitution reserve' (see Section II of this briefing note), the legislator should, in our view, consider introducing a 'restructuring' exception to the abovementioned quantitative limitations of the loss-carry-forward rules. Under such an exception rule, tax losses would be offset without limitation in the year in which the company is liquidated or against income resulting from debt waivers or other types of debt relief under an agreement with creditors.
Who pays the bill?
The big question that everyone is asking is this: who will pay the bill?
Before the COVID-19 outbreak, one of the key political topics in Belgium was how to address the structural budget deficit. With unprecedented government spending to address the economic and social impact of the pandemic, the budgetary question remains central. Revenue can be raised by increasing government debt, cutting government spending, and combatting tax and social fraud. But raising taxes will inevitably also be part of the equation.
It is always difficult to make predictions about tax-law changes, even more so in the current Belgian political context, with a minority government seeking (or being confronted with) alternating majorities in parliament. (Preliminary talks are ongoing to form a full-fledged federal government that – hopefully – would then execute a comprehensive recovery and reconstruction plan.)
Even if it is impossible to draw a blueprint for (revenue-raising) tax reform, recent developments suggest what measures may be considered in the short or medium term:
- The taxation division of Belgium's High Council of Finance (a high-level expert group advising the government) recently issued an opinion on how to reduce the fiscal and parafiscal charges on labour and how to finance such reform (see versions in Dutch (PDF) and French (PDF)). The proposed personal income tax rate reduction would be financed by broadening the tax base and abolishing preferential tax regimes, as well as increasing consumption and environmental taxes. The proposal seeks to change aspects of the Belgian personal income tax regime that have been in place for decades, such as the (favourable) taxation of real estate income and gains, the (unharmonised) taxation of investment products, the exemption on capital gains on shares, the benefit in kind for company cars, etc.
- Even if a major reform of the personal income tax regime seems ambitious, recent events show that, in the current environment, a majority may be found in parliament for targeted tax-law changes. One recent example relates to the abolition of the so-called 'cheese route', an estate planning practice under which cash, securities or other movable goods are donated through a foreign (usually Dutch) notary deed without payment of Belgian registration duties (as foreign notary deeds do not need to be registered in Belgium) or inheritance taxes (so long as the donator does not die within three years). According to a proposed law (PDF, French and Dutch) adopted by the Finance and Budget Commission of the Belgian parliament on 7 July 2020, foreign notary deeds would have to be registered in Belgium as of 1 December 2020, triggering registration duties on the donation. (The proposal has not yet been adopted by the plenary session of parliament.) It is a largely symbolic step as there are other ways to achieve a similar tax treatment. But it shows that political majorities can currently be found rather easily for the types of change that do away with (perceived) preferential or unfair tax rules.
- Several proposals, such as a multi-millionaires’ tax (PDF, French and Dutch) or a crisis contribution on large fortunes (PDF, French and Dutch) have been tabled by (left-wing) political parties in parliament that would require wealthy individuals to make a one-off contribution to help fund all those COVID-19-related government support measures. Unnuanced as they are, these proposals are unlikely to receive broad support in parliament in their current form. But they may foreshadow political discussions around who should shoulder the cost of all that extra spending.
- Stepping up the fight against tax fraud and tax evasion is undoubtedly going to be part of the next Belgian governmental agreement. It is interesting to note that the president of the Belgian Ruling Commission (which is the competent authority for the regularisation of undeclared taxes) recently pleaded for more tax transparency on funds in Belgian bank accounts (in Dutch). This may sound surprising to some, but due to the international automatic exchange of tax information, it's now easier for the Belgian tax administration to access detailed information on Belgians' foreign bank accounts than their domestic ones.
- Belgium is lagging behind on achieving its climate goals so tax policy will likely be among the much-needed additional efforts to move towards a climate-neutral society by 2050. This is certainly not just about raising taxes but also about taxing differently, as tax policy may be a catalyst for a sustainable economic recovery post COVID-19. This area will certainly be influenced by the EU's Green Deal, since taxes form an important part of the Commission’s climate roadmap (see our blog on the EU Commission’s tax policy). In the meantime, more targeted proposals may find broad political support. For example, several proposed laws are pending in the Belgian parliament aimed at decarbonising Belgium's large company-car fleet;
- The proposal for a digital services tax (DST) is gaining momentum in Belgium. It does not seem wise to introduce such a tax unilaterally, but several member states have now introduced a DST in one form or another. And it is likely going to be on the agenda of the EU Commission again, especially if the current OECD/G20 talks on more fundamental changes to the international tax system (so-called Pillar One) do not conclude or are further delayed. (The US recently paused discussions on Pillar One.)
- OECD/G20 talks on a minimum tax on multinational companies (the so-called GloBE proposal or Pillar Two) appear to be nearing their conclusion and may soon be taken forward at EU level. In fact, the German Federal Ministry of Finance has announced that this is one of the ECOFIN priorities of the current German EU Council presidency.
- In the longer run, the proposal for a common consolidated corporate tax base (CCCTB) for multinational companies may come on the table again. The CCCTB proposal may gain relevance since the EU Commission suggests that a new own resource to finance the EU reconstruction package may be based on the CCCTB (PDF).
- Discussions at EU level to introduce a financial transaction tax are also continuing, with another of the ECOFIN priorities of the current German Council presidency being to reach a conclusion on the matter.
As the economic cycle moves into its next phase, we expect to see more tax audits, more "rescue restructurings", more focus on tax integrity and more revenue raising tax measures