Some interesting topics about the Di Rupo I tax reform acts

At the end of January 2013, after one year of Di Rupo I government, not less than seven new tax laws have already been issued, partly to repair the preceding laws, partly to implement new tax rules.

We will not expand on the several measures taken, since they have already been commented extensively in various contributions and seminars over the year.

What we intend to do in this newsletter, is to pick up some small topics from the above laws that can be of interest:

1. As of 2013, ‘large’ companies (i.e. not being small in the sense of article 15 of the Company Code) are subject to capital gains tax at a rate of 0,4% on the capital gain realized on shares that would normally be considered tax exempt (since held for more than one year and not related to tax heaven companies). The capital gains realized cannot be offset against the capital losses on other shares. Furthermore, no prior nor current tax losses can be offset against the capital gains so realized, so that the 0,4% tax would be due in any cases.

2. Similar to the above, the companies owning or leasing company cars put at the free disposal of their personnel, need (as of tax year 2013, income year 2012) to report as taxable income 17% of the fringe benefit to be reported for the free use of the car, without being able to deduct prior or current tax losses. This means that even companies with (important) tax losses will be subject to corporate tax!

3. From the VAT side, there are since 2013 new rules basically allowing a VAT deduction percentage (still with a maximum of 50%) solely to the extent cars are used for business purposes. The administration proposes three methods (real business mileage, lumpsum private mileage, and lumpsum 35% deduction if the company has 4 vehicles or more). Without entering into details, the second method seems the most optimal to allow the maximum of 50% VAT recovery provided no or low commuting would be driven with the car. If a company opts for the third (easy) method, it needs to have at least 4 company ‘vehicles’ (not specified whether or not they need to be cars!).

4. New ‘thin cap’ rules entered into force since July 2012. Companies part of a group or forming a consortium (reference is made to article 11 of the Company Code) cannot deduct interest on loans or current accounts if the debts to group companies exceed 5 times their paid-up capital (end of accounting year) plus taxed reserves (beginning of accounting year). Companies in Belgium, part of a group, should carefully analyze their interco liabilities, since the above rule is now thoroughly investigated upon tax audits by the tax administration.

5. Also for group companies, as of 2013 transfer pricing tax audits will more frequently take place (one expect twice as much audits as last year!) to investigate intercompany transactions, since the new government has dedicated more specialized tax inspectors now in this area, and huge funds for the Government can be found if TP is not properly set up and documented.

6. As of 2013, movable income of all kind (interest, dividends, royalties, income from renting of movable goods) are subject to a 25% withholding tax. There are some small exceptions where a 15% or even a 10% rate still applies (interest on saving deposits, royalties on author rights, liquidation bonus,…).

7. Finally, interesting to know for the new concept of article 344 ITC (anti abuse regulation) is that in many authors’ opinion, the new rule will be difficult to apply, amongst others due to the fact an ‘active legal action’ is required (e.g. it would not be possible to deny a management company, since being shareholder of a management company is not an active legal action), and the proof of another motivation (one is enough) that is not INCOME tax driven (e.g. in an extreme assumption, an action avoiding income tax and registration duties would already imply the anti abuse regulation cannot be applied!) would be sufficient to fall out of the scope of the new regulation.