The Belgian legislator has introduced various new tax measures which are part of the implementation of the major corporate income tax reform decided on in December 2017. These new tax measures will enter into force as of January 1, 2019. Two specific new tax rules will have a significant impact on the structuring and the tax consequences of M&A transactions: the new tax consolidation regime and the new interest limitation deduction rules.
Corporate income tax consolidation
Belgium has had no corporate income tax consolidation so far, but only VAT grouping. As of January 1, 2019, however, a corporate income tax consolidation between companies will be possible (new article 205/5 Income Tax Code – “ITC”).
Belgian companies, foreign companies (if established in the European Economic Area) as well as Belgian branches of foreign companies can participate in the new tax consolidation. However, only “connected” companies qualify for the purposes of the new consolidation regime, which connection requires a direct participation of at least 90% or a participation of at least 90% in each connected company through a direct intermediary holding company. Further, the consolidation regime requires that the companies concerned have been qualified as connected companies for an uninterrupted period of at least 5 years.
If the consolidation conditions are fulfilled, the consolidation regime will allow a profit-making company to attribute a so-called tax-deductible “group contribution” to a loss-making company. This group contribution can be fiscally compensated with the current year’s tax losses of the contribution-receiving company. For the purpose of the application of the tax consolidation, the connected companies will need to conclude a so-called “group contribution agreement” which applies for a specific tax year.