On 16 June 2023, the ‘simplified side stream merger’ (vereenvoudigde zusterfusie / fusion simplifiée entre soeurs) was introduced in the Code of Companies and Associations and in the Income Tax Code. However, even in case all conditions were fulfilled, the transaction could not entirely take place tax neutrally due to ‘imperfections’ in the corporate income tax regime. The new law clears the hurdles for ‘real’ tax neutrality, at least for direct simplified side stream mergers.
What is a simplified side stream merger?
A ‘simplified side stream merger’ can be summarised as a merger whereby no new shares of the acquiring company are issued as (i) all the shares of the merging companies are owned by one and the same person or (ii) the shareholders of the merging companies hold their shares in all merging companies in the same proportion.
For company law purposes, indirect ownership is sufficient, while for income tax purposes direct ownership is required. This means e.g. that a side stream merger where all shares of the merging companies are only indirectly held by one shareholder, could take place for company law purposes under the simplified procedure, but will be considered a taxable transaction for corporate income tax purposes. In such a case it is hence better to still follow the normal merger procedure, with issuance of new shares.
What changes?
On 23 October 2025, the Chamber has adopted the law regarding the tax neutrality of the “simplified side stream merger”. The law amends the Income Tax Code and the Registration Duties Code, as a result of which issuing new shares solely to preserve tax neutrality is in principle no longer required. The changes take effect the day after publication of the new law in the Belgian Official Gazette. Below we summarise the most important hurdles that are now cleared for tax-neutral simplified side stream mergers.
1.No deemed dividend distribution
Under the prior rules, the absence of newly issued shares could trigger a deemed dividend distribution of taxed reserves and certain tax-free reserves, despite the fact that, accounting-wise, those reserves moved to the acquiring company. This could trigger withholding tax in the hands of the shareholders of the acquired company. Going forward, the mere absence of new shares will not give rise to a deemed dividend distribution in case of tax-neutral side stream mergers.
2.Transfer of paid‑up capital and reserves for direct tax purposes
Under the prior rules, in case of a simplified side stream merger there was for tax purposes no transfer of paid-up capital and reserves of the acquired company to the acquiring company because of the absence of new shares. This caused uncertainty on the corporate income tax treatment in case of later distribution of these reserves by the acquiring company. Going forward, the mere absence of new shares will no longer jeopardise such transfer in case of tax-neutral side stream mergers.
Registration duties: neutrality confirmed
The new law confirms the administrative tolerance that the mere lack of issuance of new shares does not jeopardise tax neutrality for registration duties in case of side stream mergers (and parent-subsidiary mergers).
The corporate legal benefits of the simplified side stream merger procedure
No new shares are issued in the context of a simplified side stream merger. This means that no share exchange ratio needs to be determined, and no auditor’s report on the share exchange ratio is required.
Although the share capital of the acquiring company will be increased with the amount of the share capital of the acquired company (in fact, all balance sheet items of the merging companies will be added up, same as for regular side-stream mergers), the Code of Companies and Association provides for an explicit exemption to prepare an auditor’s report on the contribution in kind.
In other words, a simplified side-stream merger can take place without any auditor’s reports. The intervention of a notary will still be required. The simplified side stream merger is hence less administrative burdensome (and more cost-efficient) compared to a regular side stream merger.
Key takeaways
Going forward, direct simplified side stream mergers can benefit from ‘real’ tax-neutrality for income tax and registration duty purposes (if all conditions are fulfilled) notwithstanding the fact that no new shares are issued. This makes intra‑group integrations faster and less administratively burdensome.
