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What is the new Belgian "fairness tax"?
The Belgian Government has recently introduced a new corporate income tax, which has been branded as the fairness tax. Taxand Belgium explores what this new tax will entail for taxpayers.
The fairness tax applies to large companies in Belgium and aims to increase tax equity amongst corporate taxpayers in order to “ensure that everyone in Belgium contributes according to their means”. The fairness tax is, however, essentially a minimum tax imposed on companies that distribute dividends, whilst in the same taxable period paying no or very few corporate income taxes because of certain tax deductions.
Only 'large' companies are subject to the fairness tax. As a result, the fairness tax does not apply to companies qualifying as SME in the taxable period during which the dividends have been distributed. The fairness tax also applies to Belgian branches of non-resident companies. In such case, the notion of 'distributed dividends' refers to the portion of the dividends distributed by the foreign company pro rata the (positive) portion of the accounting result of the Belgian branch in the global accounting result of the foreign company.
The taxable base of the fairness tax equals the positive difference between the gross amount of dividends distributed during the taxable period and the final taxable result that is effectively subject to corporate income tax (after applying all possible add backs and tax deductions). The taxable base is then reduced with the portion of the distributed dividends originating from previously - and at the latest during tax year 2014 - taxed reserves. In order to determine the timing origin of previously taxed reserves, the “LIFO”-method (Last In First Out) will be used. As such, the distribution of reserves will in first instance be imputed on the most recently established reserves.
Entry into force
The new fairness tax will apply as from tax year 2014 (financial years ending between 31 December 2013 and 30 December 2014). Any change made on or after 28 June 2013 to the closing date of the accounting year of a company will be disregarded by the tax authorities for the application of the fairness tax.
Also published in Bloomberg BNA's Transfer Pricing International Journal, September 2013
Regardless of the positive appellation of the new tax as “fairness” tax, which in reality merely constitutes a new and supplementary minimum tax without achieving any real fairness amongst the various taxpayers in Belgium, it remains highly uncertain if the new tax complies with EU legislation in general and with the EU Parent-Subsidiary Directive in particular.
The latter Directive imposes free movement of dividends between companies established in EU Member states. It is not excluded that the urgent need for extra cash by the Belgian Treasury, was a more important driving force for the new tax than the quest for a new substance of fairness in Belgian tax legislation.
In any case, a careful tax planning for corporate taxpayers is crucial in the coming months, since the new tax which has already entered into force, may be an extra element to consider whether or not to distribute dividends and what would be the tax consequences thereof or which alternatives may be considered.