Webcast be budget2012

Webcast Belgium - Budget 2012

Overview of Tax Measures - Update

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© 2012 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft. All Rights Reserved.

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08.03.2012 Ernst & Young

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Speakers

Ernst & Young 08.03.2012

Koen Cooreman Ernst & Young

Executive Director Corporate Tax

Johan Bellens Ernst & Young

Executive Tax Director Human Capital

Stijn Vanoppen Ernst & Young

FSO Tax Executive Director

Matthias Franz

Partner, Tax

Ernst & Young, Stuttgart

Herwig Joosten Ernst & Young

Managing Partner Tax Belgium

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Agenda


Introduction

Notional interest deduction

Capital gains on shares (corporate income taxation)

1.

3.

5.

2.

Thin cap

4.

General anti-abuse provision – Art. 344, §1 ITC 92

6. Pension taxation

7. Taxation of company cars

8. Withholding tax measures

9. Conclusion

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Introduction

Budget plan Di Rupo I partially put into legislation

► Law of 28 December 2011 containing miscellaneous provisions (Belgian

Official Gazette of 30 December 2011)

► Bill of second program law submitted to Parliament

► Still not all announced measures included

Budgetary exercise of EUR 11.3 billion

► Original hypothesis: economic growth of 0.8%

► Projected growth reduced to

► 0.1% (Federaal Planbureau/Bureau fédéral du Plan) in February 2012

► - 0,1% (IMF/EU Commission) in February 2012

► Need for additional EUR 1 to 2 billion

► New budget round started previous weekend

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Introduction

Tax measures: impact in 2012 (EUR 3,449 mio)

Related measures (combat fraud, …): EUR 3,220 mio (2012-2014)

EUR (in mio) Percentage

Notional interest deduction 1,620 + 45.6%

Taxation of capital gains on shares 150 + 4.2%

Company car taxation 200 + 5.7%

Externalization pension provisions 55 + 1.6%

Stock options 20 + 0.5%

Benefit in kind housing, etc. 170 + 4.8%

WHT increase and solidarity levy 917 + 26.0%

Stock exchange tax 50 + 1.4%

VAT pay-TV 84 + 2.4%

VAT notaries and bailiffs 100 + 2.8%

Excises 158 + 4.5%

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Corporate tax – Notional interest deduction

Adopted (applicable as from TY 2013)

► NID rate: reduction of cap to 3% (3.5% for SME) for 2012-2014

► As from 2015: NID rate will be determined by law

Still no draft text on

► Abolishment of NID carry-forward for future excess NID

► Limitation of deduction of existing stock excess NID (40/60-rule and

combination with 7-year limitation still to be determined)

Other news

► Reasoned opinion EU Commission regarding exclusion EU/EEA branch

equity and real estate from NID basis (26 January 2012)

► EU Commission: incompatible with freedom of establishment and EU free

movement of capital

► Belgium has 2 months to answer – probably negative answer

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Corporate tax – Thin capitalization (new regime)

Modification still in the pipeline (applicability planned as from date of publication): scope

► No longer limited to interest paid to beneficial owner, subject to no income tax or a far more beneficial regime for interest income

► Also for intra-group loans (irrespective of tax treatment of interest at the level of the beneficiary)

► Definition of group companies in accordance with Art. 11 Companies Code

► Connected companies (concept of control)

► Consortium (companies under central management)

↔ Initial version: (broader) BCC definition

► Excluded: loans contracted by

► Leasing companies under supervision of BNB/NBB and FSMA insofar the loans relate to leasing activities

► Factoring companies under supervision of BNB/NBB and FSMA insofar the loans relate to factoring activities

► Companies primarily active in the field of public-private cooperation

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Modification still in the pipeline: scope (cont’d)

► Change of thin cap ratio from 7:1 now to 5:1

► Debt

► All loans, with the exclusion of

► Bonds

► Other publicly issued borrowing instruments

► Loans granted by certain financial institutions (banks, insurance companies and other types of financial institutions listed in Art. 56, §2, 2° ITC 92)

► Look at beneficial owner in case of indirect loans and guaranteed loans when main aim of indirect loan/guarantee is tax avoidance

► Equity = fiscal equity

► The sum of the taxed reserves at the beginning of the accounting period and the paid-in capital at the end of the accounting period

↔ Initial version: accounting equity

► Special provision neutralizing the decrease of taxed reserves in case of parent-subsidiary restructurings (merger goodwill)

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Open questions - what about

► EU context ?

► Renting?

► FX intercompany loans that are potentially swapped?

► Trade debt?

Future of Belgium as location for financing centers?

► Future of cash pooling and intercompany factoring?

► No netting (no Dutch 10d-type rule – still very soft rule and relatively easy to

come by)

► Factoring/leasing exclusion: too restrictive scope of application

► No tax consolidation

► Lobbying (AmCham) in progress to

► Exclude bona fide intra-group finance companies

► Introduce netting (only on excess of loans-in vs. loans-out and interest-out vs.

interest-in)

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Risk of double taxation

► Article 55 ITC 92 (transfer pricing) continues to exist

► Article 54 ITC 92 continues to exist

► Reporting requirement for certain payments ≥ EUR 100,000 (Article 307, § 1

ITC 92)

► Pro rata temporis application (on a day-per-day basis?)

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Corporate tax – Capital gain on shares

Modification still in the pipeline (entry into application planned for TY 2013

and TY 2012 if accounting period not closed on date of publication)

► Taxation at 25% of capital gains on shares held for less than one year

(exception to principle of tax exemption of capital gains held for 1 year in full

ownership)

► Capital losses remain non-deductible

► To be assessed on a share-per-share basis

► Neutrality of tax-neutral restructurings for assessment holding period

requirement

► Special regime for shares in trade portfolio of financial institutions and certain

traders

► Taxation of capital gains – deductibility of capital losses (reference date: 31

December 2011)

► Special rules for transfers between portfolios

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Company type Portfolio Taxation

requirement

Holding

period

requirement

Tax rate

Financial institutions/

Traders Trade - - 33.99%


Traders Other X -

33.99%


Traders Other X 25.75%


Traders Other Exempt

Other companies N/A X - 33.99%

Other companies N/A X 25.75%

Other companies N/A Exempt

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Open questions:

► Imputation of deductions and losses

► Different value in case of imputation on taxable capital gains on shares (at

25.75%) or normal taxable basis (at 33.99%/progressive rates for SME)

► Imputation at choice of taxpayer? Pro rata parte?

► Probably no impact on application of progressive corporate tax rates

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General anti-abuse provision Art. 344, §1 ITC 92

Original provision adopted in 1993

► Recharacterization of transaction(s), when aim of legal characterization of

the parties opted for is tax avoidance

► Taxpayer may prove legitimate needs of a financial or economic nature for

the chosen legal characterization

► Limited application in practice due to strict legal approach adopted in case

law of Supreme Court : need for similar legal consequences (impossible for

one-step transactions and difficult for step-by-step transactions unless (near-

)simulation)

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General anti-abuse provision Art. 344, §1 ITC 92 - Modification

In the pipeline: modification of the general anti-abuse provision

► Abuse of tax law

► Avoidance of the application of provisions of ITC 92 or RD/ITC 92 (taxation vs. tax benefit)

► Through legal and non-simulated legal acts

► Approximating to taxable acts vs. acts not benefiting from a tax benefit

► Not in line with the objectives of the tax provision

► Avoidance of Belgian income tax as sole material purpose

► Inspiration in ECJ case law – aimed at wholly artificial arrangements

► Not pursuant the economic goals of the tax provision; or

► Not pursuant the economic reality; or

► Not at normal economic or financial conditions

► Entry into application

► Tax year 2013

► Tax year 2012 if accounting period is not closed on date of publication

► Similar provisions for registration duties and inheritance tax

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General anti-abuse provision Art. 344, §1 ITC 92 - Modification

Current provision New provision

Scope Legal act or legal acts establishing a

same operation

Legal act or legal acts establishing a

same operation

Burden of proof

tax authorities

Tax avoidance Abuse of tax law (wholly artificial

arrangements (inspired by ECJ case

law)): (non) application of provision,

contrary with its aim

Means of

evidence tax

authorities

All, including presumptions but

excluding oath

All, including presumptions but

excluding oath, based on objective

circumstances

Counterproof Justified economic or financial needs Other specific and material objectives,

not limited to sphere of economic or

financial needs (ruling possible on

motives, not on procedure)

Inopposability Classification of legal act(s) Legal act(s)

Sanction Reclassification in an act with identical

or similar legal consequences

Repairment of tax base or calculation

as if there is no abuse

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General anti-abuse provision Art. 344, §1 ITC 92 – Potential examples

Letting - Subletting

► Ignoring subletting?

Reduction of paid-up capital

► Dividend distribution?

Liquidation of company followed by reincorporation

► Dividend distribution?

Back-to-back financing via Belco to avoid WHT

► Direct payment to ultimate economic lender with WHT?

Split acquisition of usufruct and ownership via management company?

Split sale transactions (long lease rights with option on naked ownership) to

avoid upfront registration duties?

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General anti-abuse provision Art. 344, §1 ITC 92 – Potential examples

► Sale of shares of a single residential real estate asset company? Step-up

for the purchaser?

► Recharacterisation of profit-participating loans as profit-sharing

certificates?

► Sale of shares in Opco by individuals to new Holdco for deferred

payment, followed by dividend distribution by Opco to Holdco?

► Sale of cash management company to a financial institution, followed by

liquidation?

► Contribution of share-bond portfolio by director/shareholder into fully-

owned EBVBA/SPRLU to avoid WHT?

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General anti-abuse provision Art. 344, §1 ITC 92

Potential issues

► Retroactive entry into application?

► Application possible over several years for step-by-step transactions in case

of “eenheid van opzet / unité d’intention”

Action points:

► Assess impact of extended reclassification possibilities on structures and

operations

► Consider potential planning before enactment and publication still

► Ernst & Young has dedicated a team of tax specialists to further analyze the

new provision and to follow-up on developments in its application

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Corporate income tax - Pensions

Modification still in the pipeline: mandatory externalization of individual

pension promises (financing via internal provisions is no longer allowed)

► Initial plan:

► Existing internal provisions: externalization within three years

► Insurance premium tax

► 4.4% on new insurances

► 1.75% on externalization of existing internal pension provisions

► BUT: rumored agreement on

► Externalization requirement only for future – no externalization obligation for

existing pension provisions; and

► Tax of 1.75% on existing pension provisions, with possibility to spread over 3

years (at 0.6% per year)

► Tax of 4.4% on future contributions

► Date of entry into application unknown

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Modification still in the pipeline: adaptation of treatment of employers’

contributions (second pillar)

► Initial plan: Additional limitation of tax deductibility of complementary pension

contributions based on amount of pension payment upon retirement

► Currently: cap of 80% of last annual gross salary

► Introduction of an additional cap: pension of the highest public official (gross

EUR 72,480.72 per year or EUR 6,040.06 per month)

► BUT: rumored agreement on changes to initial plan

► No change to 80%-rule

► Social security contribution on employers’ contributions if the premiums paid

constitute a pension (legal and extra-legal pensions combined) which exceeds

the pension of the highest paid public official

► Date of entry into application unknown

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Action points / points of attention

► Follow-up on rumored changes to initial plans - Ernst & Young keeps

subscribers up-to-date on developments via Tax Alerts!

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Personal income tax - Pensions

Still in the pipeline: modification of treatment of payments and contributions

► Pension payments (second pillar): increase of tax rate on payments (part

relating to employer contributions)

► Current situation

► Payment at ages 60 to 64: 16.5%

► Payment at age 65: 10%

► New situation



► Payment at age 62 to 64: 16.5%


► Personal pension contributions (second and third pillar)

► Current situation: tax reduction at rate between 30% and 40%

► New situation: tax reduction at 30%

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Corporate and personal income tax Company cars

Adopted (applicable as from 1 January 2012)

► New calculation formula for benefits in kind (BIK) for company cars (to be

amended)

► Deduction of lump sum commuting cost limited to amount of BIK

► Additional disallowed item related to company car costs (corporate and legal

entities taxation)

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New calculation formula for BIK company cars

Law of 28 December 2011

► Car list value = amount invoiced, including VAT and options, but excluding

rebates and discounts

Modification in the pipeline: same car list value for all cars

► Car list value = car list price in case of sale of new car to an individual,

including VAT and options, but excluding rebates and discounts


BIK = car list value x age correction x CO2 coefficient x 6/7

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Modification in the pipeline: age-correction : 6% per year– Age correction

up to a max. of 70% of list price

Number of months expired from

first registration date (month

started = full month)

Percentage of car list value to be

taken into account

From 0 to 12 months 100 %





As of 61 months 70 %


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Car type Current BIK

(7,500 km)

BIK new regime

(year 1)

Audi A6 3,0 TDI EUR 2,397.75 *EUR 3,640.37

BMW X5 xDrive30D 245 EUR 3,363.75 EUR 7,380.21

Mercedes-Benz CLS 350 CDI I EUR 2,742.75 EUR 7,254.85

Mini One D EUR 1,707.75 **EUR 1,200.00 * See below

** Minimum BIK

► Example: Audi A6 Diesel

► List price: EUR 42,900

► CO2 level: 139 g/km

► CO2 coefficient: 5.5% + 4.4% = 9.9%

► BIK year 1: List price x CO2 coefficient x 6/7 = EUR 3,640.37

► [BIK year 2: List price x 94% x CO2 coefficient x 6/7 = EUR 3,421.95]

► [BIK > year 5: List price x 70% x CO2 coefficient x 6/7 = EUR 2,548.26]


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FAQ on website tax authorities

► Pro rata temporis calculation on calendar day basis

► First day to be included, day of return of car excluded

► Pro rata applies in case

► Company car available during part of year

► Temporary car (“aanloopwagen / véhicule de transition”)

► Switching cars during the year

► Absence from work (e.g. illness) and car is to be returned to employer during

the period of absence

► No pro rata termporis reduction in case of

► Temporary unavailability of car (repair) / no impact of replacement car

► Normal absence from work (leave, sickness)


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FAQ on website Tax Authorities

► Partial private use

► Rule: normal calculation if any private use

► Exception: social benefit in case of exceptional private use of a pool car (e.g. exceptional family circumstance)

► Discounts

► Not to be deducted from car list value / calculation base

► Fleet discount/ free options / …

► FAQ: VAT on discount to be included in car list price

↔ Explanatory memorandum of pending modification: only include VAT really paid (=> not VAT on discount)

► Options financed by employee

► Price of the options not to be included in the calculation base

► Irrespective of payment modality

► Payments by employee for repair/damages: not deductible


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Management Company Car Tool: Input (1)

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Management Company Car Tool : Output (1)

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Management Company Car Tool : input (2)

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Management Company Car Tool: output (2)

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Personal income tax – BIK housing/utilities

RD of 23 February 2012 (published on 28 February 2012)

► Increase of the BIK for heating from 1.640 to EUR 1,820 (indexed amounts)

for income year 2012

► Increase of the BIK for electricity from EUR 820 to EUR 910 (indexed

amounts) for income year 2012

► Increase of the BIK for free housing for house with a notional income (non-

indexed) exceeding EUR 745

► Currently: 100/60 x notional income x 2

► 2012 : 100/60 x notional income x 3.8

► Subject to indexation annually

Action points / points of attention

► Reconsider the remuneration package of employees/directors involved (e.g.

minimum salary threshold to benefit from the corporate income tax rate for

SME)

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Withholding tax

Adopted (applicable to payments as from 1 January 2012)

► Increase of WHT rate on interest and reduced WHT rate on dividends to 21%

► Introduction of an additional “solidarity levy” of 4%

► New reporting requirements for withholding agents

Legislative amendments in the pipeline

► Practical aspects of the “solidarity levy” (reporting requirements, nature of the

levy, etc.)

Finance Minister: “Reform of WHT rules of Law of 28 December 2011 is still

possible”, referring to

► Return to system of anonymity and final character of WHT

► 25% WHT rate with reimbursement of 4% on EUR 20,020 of qualifying interest

and dividends upon request via the tax return

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Withholding tax

Additional solidarity levy – What?

► Extra levy of 4% (no municipality surcharge)

► Applicable to the net amount of interest income and dividends exceeding EUR

20,020 (in 2012), excluding

► Dividends and interest payments subject to the 10 or 25% rate of WHT

► Interest paid on government debt securities issued and underwritten between

24 November 2011 and 2 December 2011; and

► Interest from qualifying savings accounts

► Ongoing lobby from financial sector for abolishment (application of 25% with

reimbursement of excess, cfr. previous slide)

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Withholding tax

Additional solidarity levy – How?

► Either to be levied at source

► Or via assessment (optional)

► At the request of the beneficiary

► Giving rise to reporting formalities of the relevant investment

income

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Withholding tax

Additional solidarity levy – How?

► Levy at source: 4% on the entire amount

► Possibility to claim back excess via the tax return

► Character: not tantamount to a withholding tax

► Via a specific form (not WHT returns): still to be issued

► Extent to which existing rules regarding WHT apply: still uncertain!

► Legislative amendments in the pipeline

► Specific references to certain (sub-)sections of the ITC 92

► Sub-section relating to WHT exemptions (articles 264-266 ITC 92) is

explicitly set aside!

► Unwanted effect: does that mean that investment income subject to 0%

WHT (e.g. share redemption through stock exchange, dividends from

domestic REITs) will always be subject to the 4 % of additional

solidarity levy ??

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Withholding tax

Additional solidarity levy – Assessment through reporting

► Act of 28 December 2011: obligations on withholding agent

► The issuer in the case of Belgian sourced income (except for securities held in

the X/N system for which BNB is the WHT agent)

► First intermediary or subsequent financial institution for foreign sourced

income

► Problem: the beneficiary’s identity is unknown to withholding agent

► No election possible? Always via levy at source? At what rate?

► No solution yet

► Problem: withholding agent has not all info subject to reporting

► Legislative amendments in the pipeline

► Withholding agent for income from nominative securities

► Income arising from all other securities: reporting obligation shift to

paying agent

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Withholding tax

Additional solidarity levy – Reporting: to whom? What?

► To whom? Legislative amendment in the pipeline:

► Reporting to the competent department of the FOD/SPF Finance

► Instead of the National Bank

► Department independent from tax authorities (IT staff)

► Reporting of personal (beneficiary) and payment identification data

► What income?

► No reporting requirement for interest income/dividends on which the additional

solidarity levy was applied at source

► Legislative amendment in the pipeline: exception (reporting) if debtor

bears WHT

► Reporting requirement for all other interest and dividend income listed in article

17, §1, 1° and 2° ITC 92

► Reporting only in view of applying the additional solidarity levy/treshold

computation? Quid liquidation boni taxable @ 10%, government debt taxable

@ 15%?

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Withholding tax

Additional solidarity levy – Reporting to the tax authorities?

► Communication to the tax authorities FOD/SPF Finance

► Upon request:

► Only possible in respect of the solidarity levy (when the taxpayer requests a

refund of 4% levy)

► Not for other purposes, e.g. taxation based on “tekenen en indiciën van

gegoedheid / signes et indices d’aisance”

► Automatic communication

► Only if more than EUR 20,020 reported to the competent department of the

FOD/SPF Finance

► Practical aspects to be laid down in a Royal Decree

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Withholding tax – Examples

WHT rate Threshold Solidarity levy Reporting to

FOD/SPF

Dividends (strips) 21%

(unless 4%)

Dividends

(no strips)

25%

X

Regulated

Interest savings

accounts

15% (exempt

up to EUR

1,830)

X

Interest

government

bonds 24/11-

2/12/2011

15% X

X

Interest on debt

pre-1990

25%

X

Other interest 21%

(unless 4%)

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FOD/SPF

Dividends

beveks/sicavs

21%

(unless 4%)

Dividends REITS 21%

(unless 4%)

Dividends

residential REITS

0% X ? ?

EU passported

beveks/sicavs,

> 40% debt

(accumulating)

21%

(unless 4%)

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FOD/SPF

Liquidation boni 10% X

X

Redemption

share buy-back

21%

(unless 4%)

Income listed in

Art. 21 ITC

N/A X X X

Other movable

income

15% X

X

X

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Conclusion

What’s next?

► Second bill of program law submitted to Parliament (cf. supra)

► General anti-abuse measure (Art. 344, §1 ITC),

► Thin cap

► Modifications relating to solidarity levy

► Capital gains on shares (corporate income taxation)

► Company cars

► Legislation for remaining items to be drafted

► NID carry-forward

► Conversion of tax deductions into tax reductions (personal income tax)

► Pension taxation

► Measures relating to the combat of tax fraud

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Conclusion

What’s next? (cont’d)

► First and preliminary information budget round last weekend: new tax measures?

► Proposals shot down:

► VAT increase

► Minimum tax for companies

► Tax amnesty

► Pick-up of measures abandoned earlier (note Di Rupo)?

► Exclusion of mandatory equity from NID basis (minimum capital and legal

reserves)?

► Tax on airplane tickets (business and first class)?

► Increase of tax on liquidation boni?

► 2-year holding period requirement for participation exemption and

exemption of capital gains on shares in corporate tax?

► Taxation of capital gains on shares in personal income taxation?

► VAT for lawyers?

► Wealth tax?

Ernst & Young will organize a follow-

up webcast or seminar in case of

further important developments – you

will receive an invitation in due time

Thank you for your attention!

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Disclaimer Improper use


► By nature, the information made available can neither be exhaustive nor tailored to the specific needs of

an individual case. It does not constitute advice, any other form of legally binding information or a legally

binding proposal on our part.

► This presentation reflects our interpretation of the applicable tax laws and regulations, the

corresponding court rulings and the official statements issued by the tax authorities.

► This presentation is based on the law as of the date of this presentation. In the course of time, tax laws,

administrative instructions, their interpretation and court rulings may change. Such changes may affect

the validity of this presentation.

► We are not obliged to draw your attention to changes in the legal assessment of issues dealt with by us

in this presentation.

► We assume no warranty or guarantee for the accuracy or completeness of the contents of this

presentation. To the extent legally possible, we do not assume any liability for any action or omission

that you have based solely on this presentation. This also applies should the information prove to be

imprecise or inaccurate.

► This presentation and the handout are not a substitute for qualified tax advice.

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► Copyright: Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft - All Rights Reserved.

► The disclosure, reproduction, distribution and/or processing of all content and images of this presentation, as

well as any other forms of use, are only permitted with the prior written consent of Ernst & Young GmbH

Wirtschaftsprüfungsgesellschaft.

Disclaimer Copyright


52


Herwig Joosten

Tel.: +32 2 774 91 00 Email: [email protected]

Ernst & Young

Assurance | Tax | Transactions | Advisory 2012 Ernst & Young Transaction Advisory Services All rights reserved.

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Webcast be budget2012