The Belgian VAT landscape, in recent months, has once again seen a number of important changes. While most of these changes are particularly relevant for the financial and real estate sectors, there are also a number of developments that are relevant for all companies that carry out taxable transactions in Belgium. We have summarized, in the overview below, some key VAT changes that businesses should be aware of.
General VAT changes
We refer to our previous updates (click here) where we explained that as from January 1, 2013 new rules on chargeability of VAT became applicable. The date of the invoice was cancelled as chargeable event for local transactions in Belgium.
Due to a lot of practical problems with respect to the application of these new rules regarding advance payments, transitional measures were put into place. At the end of 2014 the Belgian VAT authorities published the final regime regarding the rules on chargeability and advance invoices, which did enter into force as from January 1, 2015. However, the VAT authorities would not criticize the application of the old rules up till 30 June 2015.
The new rules and the various administrative guidelines are rather sophisticated and complex and require business to radically adapt their accounting systems. As this means an important additional compliance burden for businesses, we already communicated that the new federal government would review the new rules on chargeability of VAT. Currently these discussions are being held.
In a new decision dated 17 April 2014, the authorities have now announced that the rules would change once again. It is the intention to link VAT chargeability again to the date of the invoice and restore the old practices. In anticipation to this change in Belgian VAT legislation, the old rules – as commented in our previous update – may still be used and this up till the new law would enter into force.
Summarizing, two and a half years after the amendment of the law, the rules on chargeability of VAT for (advance) invoices applicable prior to 2013, may still be used. Generally spoken, the invoice date is still accepted as a moment of chargeability and recovery for VAT (except for intra-Community services). Following the latest decision on chargeability, businesses should thus no longer take into account the new complex rules on chargeability. Businesses that, in the meantime, adapted their accounting system to the new complex rules will probably need to change this again in the future.
Click here for Administrative Decision nr. E.T.128.109 dd. 17.04.2015
Director-legal person and VAT
We refer to our previous update on the Belgian VAT position of a director-legal person (click here). The Belgian VAT authorities communicated at first instance that as from January 1, 2015 the fees received by directors-legal person would in principle be subject to Belgian VAT if the services are performed for a Belgian company. Prior to this date a director-legal person had the choice whether or not to subject its fee to VAT.
As it was pragmatically not possible for the directors-legal person to meet the VAT requirements that would be imposed on them as from 2015 in such a short notice, the Belgian VAT authorities do only require the VAT registration of them as from 2016. Further comments on this were announced by the Belgian VAT authorities, but up till now these have not yet been published. Businesses should review their VAT position before the end of this year.
Click here for Administrative Decision nr. E.T.125.180/2 dd. 12.12.2014
VAT and catering costs
By administrative decision the Belgian VAT authorities agree to comply with the case law of the Belgian Supreme Court relating to the deduction of input VAT and catering costs.
Before the Belgian VAT authorities only accepted the deduction of input VAT for reception costs. In this respect the Supreme Court already judged that reception costs incurred with a view to promoting certain goods or services should be regarded as publicity costs with a strict professional character, not subject to the exclusion of VAT deduction.
For VAT on catering costs however, the VAT authorities still refused to grant a VAT deduction. Following the recent decision, the VAT authorities now follow the judgement of the Belgian Supreme Court. If the costs are made with a view to inform prospects and with the purpose to promote the sales, the VAT on these costs is in principle fully deductible. We would however advise a VAT taxable person to keep as much of proof as possible when VAT on catering costs would be reclaimed.
Click here for Administrative Decision nr. E.T.124.247 dd. 13.03.2015
VAT and Financial Services
VAT exemption for collective investment funds
Belgian VAT law has a VAT exemption for the management of “collective investment funds”. This VAT exemption is particularly relevant for the fund industry as it allows managers of qualifying funds to invoice their fees without adding VAT. Without this exemption, the cost of qualifying funds’ management is increased by 21% as such funds generally do not have the right to recover input VAT.
This VAT exemption does not apply to the management of each kind of investment fund. It only applies to qualifying “collective investment funds” as defined under VAT law.
Various financial law reforms, combined with the VAT exemption’s rather obscure wording, have created uncertainty concerning the VAT exemption’s scope. This outcome has mainly arisen from the adoption of the “alternative investment funds management” Directive into Belgian financial law in 2014.
The existing VAT rules provided for a VAT exemption for the management of all kind of regulated collective investment funds (qualifying investment funds such as Sicav, Sicafi, and closely held investment vehicles - Pricaf Privée). This VAT exemption also applies to the management of pension funds (OFP). Last year, the management of Belgian Real Estate Investment Trusts (B-REIT) was also included in the VAT exemption.
Following the 2014 adoption of the “alternative investment funds management” Directive, many of the regulated funds are now covered by a new Belgian law (the AIFM law). However the AIFM law is not mentioned in the Belgian VAT exemption.
On a strict interpretation, the Belgian VAT exemption would only apply to the management of UCITS, special vehicles for the investment in receivables, OFP and B-REIT. All other kind of funds, like institutional Sicavs, Pricaf Privée and other regulated investment funds, which do not qualify as UCITS, would no longer be covered by the VAT exemption. In theory, this VAT exemption change would apply from the date that the new VAT and financial rules came into effect from as early as 16 July 2014.
However, following discussions of this important issue with the Ministry of Finance and representatives of the VAT authorities, the strict interpretation has been reviewed. In an official decision, the Belgian VAT authorities now accept that the VAT exemption still applies for the management of all investment funds that were regulated by the previous version of the Act of 3 August 2012 (before this law was changed by the AIFM-Act and before the Belgian VAT Code was changed by the Act of 12 May 2014 on B-REITS).
This last development means that the VAT exemption still applies to all institutional Sicavs, Pricaf Privée and other funds that were previously regulated by the Act of 3 August 2012.
The administrative decision, however, requires a legislative initiative to correctly adapt the current wording of the Belgian VAT exemption. The decision does not impose a deadline but we hope that the Belgian legislator will quickly and adequately resolve this issue.
Click here for Administrative Decision nr. E.T.127.885 dd. 30.03.2015
VAT exemption for real estate funds: Advocate General J. Kokott’s Opinion in CJEU case 595/13, Fiscale Eenheid X dated 20 May 2015
Advocate-General J. Kokott has given an interesting Opinion in Fiscale Eenheid X, a case concerning a VAT exemption for collective investment funds. This matter was referred to the Court of Justice of the European Union by the Netherlands.
In this case, company A, part of a VAT group (Fiscale Eenheid X) in the Netherlands, supplied several management services to real estate investment funds. Amongst other transactions, company A acquired and sold real estate on behalf of the investment funds and acquired new shareholders. Since the investment funds did not have their own personnel, company A also took care of all the other management activities, such as the usual activities of a statutory director, daily management of the funds’ assets, financial reporting, etc.
Company A believed that all its activities, carried out on behalf of the real estate investment funds, could benefit from the exemption for collective investment funds. The Dutch VAT authorities, on the other hand, took the view that the exemption only applied to the mere acquisition and sales transactions of real estate property and to the acquisition of new shareholders.
The Advocate-General’s Opinion has, first, confirmed that under certain circumstances, a real estate investment fund can qualify as a special investment fund in the sense of the VAT exemption (as laid down by Article 135 (1) (g) of the EU VAT Directive). More specifically, the Opinion has stated that, to do so, such a fund must be subject to regulatory supervision. In this respect, it should be noted that the Alternative Investment Funds Managers Directive (AIFMD) introduced a harmonized regulatory regime for alternative investment funds such as, amongst others, real estate investment funds. The Opinion has also stated that the nature of the assets that the investment fund holds is in fact irrelevant as to whether or not the VAT exemption applies.
Secondly, the Opinion has further defined the meaning of the word “management” for the purposes of the VAT exemption (as laid down in Article 135 (1) (g) of the EU VAT Directive). This clarification will, to a greater extent, depend on the type of assets held. According to the Opinion, “management” constitutes, for real estate investment funds, services that allow the owner to exploit the ownership of its assets and so includes the actual management of that property.
In Belgium, B-REIT’s (real estate investment trusts) can already benefit from the VAT exemption for collective investment funds. In this respect, the Belgian VAT exemption should be in line with the Advocate-General’s Opinion. Nonetheless, if the CJEU follows the Opinion, then all investment funds regulated by the AIFMD would, in our view, fall within the scope of the exemption for collective investment funds. As a result, several EU Member States, including Belgium, could be obliged to broaden the scope of the exemption laid down in their national VAT legislation.
Click here for Advocate General J. Kokott’s Opinion in CJEU case 595/13, Fiscale Eenheid X, dated 20 May 2015.
VAT exemption for portfolio management services
The Belgian VAT authorities published an administrative decision in which they elaborate on their point of view of the case Deutsche Bank (European Court of Justice, C- 44/11, dated 19 July 2012).
In the case Deutsche Bank the Court of Justice stated that portfolio management services are fully VAT taxable and that there is no room for splitting up these services in (i) on the one hand VAT taxable investment consultancy services and (ii) on the other hand VAT exempt services relating to the transfer of securities.
In the new administrative decision the concept of “portfolio management services” is set of against “investment consultancy services”. When providing investment consultancy services, the consultant is no longer deemed to automatically have a mandate to buy or sell any securities for the recipient of the investment consultancy services. The latter has to undertake the initiative for this by itself or mandate the consultant to act as such. In this respect, the VAT authorities take the point of view that the investment consultancy services are then to be separated from the services regarding the purchase / sale of securities. The first mentioned services would in principle be VAT taxable, while the other services would in principle benefit from a VAT exemption. In other words, in such cases the package of services rendered may, or even must be split in two separate services that follow their own VAT (taxable or exempt) qualification.
The Belgian VAT authorities demand the implementation of their new point of view as from 1 July 2015.
Click here for Administrative Decision nr. E.T.124.567 dd. 10.04.2015
VAT group and transactions between a parent company and its branch
The Belgian VAT authorities published an administrative decision in which they elaborate on their point of view of the case Skandia America Corp. (European Court of Justice, C- 7/13, dated 17 September 2014).
In the case Skandia America Corp. the Court of Justice stated that the services rendered by a non-EU parent company to its branch, who is a member of a VAT group, fall within the scope of VAT. If the branch is a member of a VAT group it is no longer deemed to be the same legal person for VAT purposes as its parent company. The principles from the case FCE Bank (European Court of Justice, C- 210/04, dated 23 March 2006), i.e. transactions between a parent company and its branch do not fall within the scope of VAT, will no longer be applicable in such cases. As such, the VAT group has to account for VAT on the services rendered by the parent company under the reverse charge mechanism.
First of all the Belgian VAT authorities explain that the case Skandia America Corp. would only apply in a cross-border relation. Indeed, in Belgium a Belgian established VAT taxable person is deemed to join a VAT group with all its branched having its registered address in Belgium. At least one establishment would therefore have to have its registered address abroad.
Secondly, The Belgian VAT authorities also apply the case Skandia America Corp. on outgoing transactions. The facts in the case before the Court of Justice related to the purchase of services by a branch – member of a VAT group from the parent company. Notwithstanding this, the Belgian VAT authorities apply the same principles when a branch – member of a VAT grouping would render services to its parent company or another branch of this company.
Thirdly, the vision of the Court of Justice in the case Skandia America Corp. was already laid down in Belgian VAT law (art. 19bis Belgian VAT Code as an anti-channeling measure, entered into force in 2007). However, as a strict interpretation of the law would totally undermine the implementation of a VAT group, it was accepted that the anti-channeling measure would only be applied if the branch would re-invoice the purchased service (e.g. to other members of the VAT group, which could be done without VAT).
With the judgement in the case Skandia America Corp. the Belgian tolerance can no longer be applied (as this is contrary to the vision of the European Court). As such art. 19bis Belgian VAT Code will be abolished.
Please note that other EU Member States will not implement this court case as such (UK). Most Member States have not yet taken a position. It is clear that this will trigger issues if Member States will apply different interpretations. Discussions are going on on a EU level. The outcome of these discussions is not clear yet.
Click here for Administrative Decision nr. E.T.127.577 dd. 03.04.2015
VAT and Real Estate
Ruling – Sale of a building after structural alterations
The Belgian ruling authorities have published ruling nr. 2015.114 of 10 March 2015 that gives additional clarifications to the applicable VAT treatment in the case of structural alterations to a building in view of its subsequent sale.
In Belgium, buildings can be sold under the VAT regime to the extent that they are, from a VAT point of view, “new”; which means until the end of the second year following the year in which the building was first occupied. Old buildings can become “new” as a result of structural alterations. This situation occurs when (i) buildings are modified significantly in their nature, structure and use, or (ii) when the costs of the structural alterations amount to at least 60% of the selling price of the building (in other words, without the land price) upon completion of the alterations.
The underlying facts mean that (i) the use of the building had changed as a result of the structural alterations (from office building to apartments) and (ii) the costs of the alterations amounted to at least 60% of the selling price of the building upon termination of the renovation works. In its decision, the ruling authorities confirmed that a mere change in the use of a building, without a radical change in its nature and structure, in principle will not be sufficient to become new for VAT purposes (this principle has already been confirmed in previous rulings).
A more remarkable clarification however, concerns the interpretation of the 60% rule. The ruling authorities have stated that when the 60% limit is exceeded, the builder is not obliged to sell the building under the VAT regime. The builder has, in fact, the choice between the VAT regime and the registration rights regime, upon the condition, of course, that the building was not significantly modified in its nature and structure.
Click here for Ruling nr. 2015.114 dd. 10.03.2015.