Last update: 10 January 2013 - 15:45 CET
Overview of the Budget 2012 corporate tax measures.
The capital gains exemption of 100% of the net capital gains amount is maintained but the exemption has become subject to a 1-year holding requirement. For the capital gains exemption to apply, the shares must have been held in full ownership during an uninterrupted period of 1 year.
A special rule exists for the calculation of the 1-year period for shares acquired in exchange of tax-neutral transactions (i.e. those covered by Art. 46, §1, 1st indent, 2°, 211, 214, §1 and 231, §§2 and 3 and meeting, where required, the business purpose test of Art. 183bis ITC). In these cases the 1-year period needs to be computed as of the date of acquisition of the exchanged shares and not as of the date of acquisition of the shares received in exchange (i.e. the tax-neutral transaction is disregarded).
In addition, a new rule would has also been introduced by the Law of 13 December 2012 to clarify the calculation of the 1-year period for shares acquired at the occasion of tax-neutral transactions. More in particular, in case the absorbing or acquiring company would, at the occasion of a tax-neutral transaction, receive (third party) shares which were previously held by the absorbed or contributing company, these (third party) shares are deemed to have been acquired by the absorbing/acquiring company at the date on which these shares were initially acquired by the absorbed or contributing company.
If the 1-year holding period is not satisfied, the capital gains will be subject to a separate tax at the rate of 25.75%.
Capital gains on shares will thus be subject to one of the following three tax regimes:
Nothing has changed with respect to capital losses and write-offs on shares: their deduction will remain disallowed, unless there is a liquidation of the company in which the shares are held.
We refer to the Budget 2013 website for the latest changes to the tax regime of capital gains on shares.
So-called “trading companies” governed by the Royal Decree of 23 September 1992 (credit institutions, investment entities and management companies of collective investment undertakings) are not caught by these new rules as far as the shares recorded as part of their trading portfolio are concerned (e.g. shares held as trading stock to resell them within a short period of time). Capital gains on such shares are fully taxable whereas capital losses and write-offs are fully deductible. Special rules are also foreseen for internal transfers of shares from and to the trading portfolio.
The new rules are applicable as of tax year 2013. They also apply to capital gains (as well as capital losses and write-offs) realised as of 28 November 2011 during a taxable period closing at the earliest on the date of publication of the law, i.e. 6 April 2012. Any modification to the closing date of the annual accounts made as of 28 November 2011 will be disregarded for purposes of the new rules.
The Law of 28 December 2011 containing miscellaneous measures () provides an increase of the reduced withholding tax rate of 15% on dividends to 21%. The 15% rate applied to (i) dividends related to shares that have been publicly issued from 1994; (ii) dividends related to shares issued in exchange of private (non-public) cash contributions made from 1994; and (iii) dividends related to shares in recognised investment companies.
The default withholding tax rate for dividends is maintained at 25%. Liquidation boni remain subject to the 10% withholding tax rate. Share buybacks no longer benefit from the 10% rate and are also subject to a 21% withholding tax. The existing withholding tax exemptions are not affected.
The default withholding tax rate on interest is increased from 15% to 21%.
For interest from government bonds, the withholding tax rate is maintained at 15% for bonds issued and subscribed during the period from 24 November to 2 December 2011. All other government bonds become subject to the 21% default rate.
The withholding tax rate for royalties remains at 15%.
The increased withholding rates apply to interest and dividends paid or attributed as of 1 January 2012.
We refer to the Budget 2013 website for the changes to the withholding tax rates as of 1 January 2013.
The NID rate continues to be determined annually based on the OLO rate but the previous maximum of 6.5% for large companies and 7% for SME’s is decreased to 3% for large companies and 3.5% for SME’s. These new maximum rates apply as of tax year 2013. Based on the average OLO rate for 2011, the NID rates for tax year 2013 based on the OLO rate would have amounted to (rounded) 4.2% and 4.7%. Hence, for tax year 2013 the new maxima of 3% and 3.5% constitute the NID rates to be applied (Dutch | French).
The Law of 13 December 2012 containing tax and financial measures (Kamer | Chambre - Staatsblad | Moniteur) specifies that changes to the closing date of annual accounts as of 28 November 2011 are not effective for the purposes of determining the applicable NID rate.
The possibility to carry-forward excess NID for 7 taxable periods is abolished as of tax year 2013.
However, the current “stock” of NID carry-forwards will remain available but its use will be restricted.
The NID stock deduction becomes the last operation in the corporate tax return to determine the taxable base. The maximum NID stock deduction that a company can use per tax year is limited to 60% of the taxable base. This limitation does not however apply to the first €1 million of the taxable base remaining before the deduction of the NID stock. The NID stock which remains unused further to this 60% limitation can be carried forward until full utilisation of the amount which would have been deductible if the 60% restriction had not existed (regardless of the expiration of the 7-year carry-forward period). This comes down, in principle, to allowing deduction of NID stock which would have been deductible under the current 7 year carry-forward rule, but spread over a longer period.
Changes to the closing date of annual accounts as of 28 November 2011 are not effective for the purposes of determining the NID stock deduction.
The 7:1 thin cap rule has been replaced by a 5:1 debt to equity ratio.
The date of entry into force of the new thin cap regulation introduced by the Program Law of 29 March 2012 is 1 July 2012 (Koninklijk besluit van 27 juni 2012 | Arrêté royal du 27 juin 2012) . The date of entry into force of the amendments in the new Program Law is also 1 July 2012.
Debt is defined as:
Bonds and other debt issued by public offering are excluded, as well as the loans granted by banks and other financial institutions as meant in Art. 56, §2, 2° ITC.
Similarly, the new rule does not apply to loans contracted by:
Equity is defined as the sum of the taxed reserves at the beginning of the taxable period and the paid-in capital at the end of the taxable period. For non-profit organisations subject to corporate income tax, paid-in capital is defined as the funds of the association as reflected on the balance sheet.
An anti-abuse measure provides that loans guaranteed or funded by a tainted third party (bearing part or all of the risks of the loan) will be deemed granted by this third party (cf. the anti-channeling provision for foreign tax credit purposes).
The Program Law of 22 June 2012 contains a provision which aims to provide a solution for the potentially adverse consequences of the new thin cap rule on groups who centralise certain intra-group financing activities in Belgium. The solution consists in the introduction of an exception to the thin cap rule for centralised treasury management (“gecentraliseerd thesauriebeheer binnen een groep” or “gestion centralisée de trésorerie d’un groupe”). The exception allows a netting whereby the interest expenses which would in principle be subject to the 5:1 thin cap limitation can be reduced with interest income from group members, provided the interest relates to qualifying treasury management.
The Program Law of 22 June 2012 defines the concept of “centralised treasury management” as “the management of the daily treasury transactions (cash pooling) or the short-term treasury management or exceptionally longer-term treasury management to take into account specific circumstances in relation to the “normal” treasury management”. No examples are given of short-term or exceptional longer-term treasury management.
The netting is limited to interest from financing activities (i) with companies belonging to the “group” (i.e. affiliated companies, cf. Art. 11 Companies Code) (ii) realised within the context of a framework agreement for centralised treasury management. The taxpayer will have the burden of proof and will need to demonstrate that the netting relates to qualifying financing activities.
More in particular, for financing activities which are performed within the context of such framework agreement, interest caught by the 5:1 thin cap rule is defined in the hands of the company which is entrusted with the centralised treasury management as the positive difference between:
For the determination of this positive difference the interest income is not taken into account when it is obtained from:
In order to be eligible for the exception, a framework agreement should be drafted which should provide details on the financing model applied and the activities performed as part of the centralised treasury management. Such activities could consist of the placement and redistribution of excess cash with affiliated companies and the provision of guarantees to group members who borrow from third parties. The framework agreement will need to describe the method of netting of receivables and payables, the modalities for the intervention of group companies and the remuneration model.
Only transactions performed under a framework agreement containing the necessary information in relation to the organisation of the centralised treasury management would be eligible for the treasury management exception.
A second amendment introduced by the Program Law of 22 June 2012 relates to the exception introduced by the Program Law of 29 March 2012 (Dutch | French) for equipment leasing and factoring companies in the financial sector, and for public-private partnerships (see above).
This exception is restricted to payments to group companies. The initial text has been modified to exclude that the exception would also apply to interest payments made to beneficial owners located in tax havens.
The plans to introduce a new cap to the so-called 80% rule by linking the deductibility of pension contributions to the highest pension for public servants have been dropped. As an alternative, a special 1.5% social security contribution will be applicable on pension contributions exceeding certain thresholds.
The contribution is due for employees as well as for self-employed company executives.
The Program Law of 22 June 2012 provides for a transitional regime from 1 January 2012 until the entry into force of the final regime. The final regime would be applicable as from 1 January 2016 unless an earlier date of entry into force would be introduced by Royal Decree. According to the Explanatory Memorandum, different entry into force dates for the final regime for employees and self-employed directors are not excluded.
Under the transitional regime, the special social security contribution is due on the amount of the contributions and premiums for extra-legal pension plans of a beneficiary exceeding €30,000 per year (index-tied amount). This implies that if in a certain year in total €35,000 contributions and premiums would be paid in relation to a specific beneficiary, the special social security contribution would be due on €5,000. For self-employed directors the contributions and premiums to the VAPZ/PLCI are not taken into account under the transitional regime.
Under the final regime, the contribution is due for every year during which the employer or company pays contributions and premiums to an extra-legal pension scheme for an employee or self-employed director provided the total sum of legal and extra-legal pensions exceeds the pension objective (“pensioendoelstelling / objectif de pension”) in the hands of the beneficiary on 1 January of that year. Changes that occur during the year will not be taken into account. To determine the total sum of legal and extra-legal pensions all pension plans will be taken into account (including plans funded by personal contributions of the employee and the VAPZ/PLCI of the self-employed director).
For income tax purposes the new 1.5% social security contribution will be assimilated to the other social contributions.
The special contribution in relation to employees will be due in the 4th quarter of the year for employees and by December 31 of the year at the latest for self-employed directors.
The Program Law grants the authority to the King to further determine by Royal Decree the practical modalities in relation to the determination and payment of the special contribution.
Notwithstanding the authority granted to the King, the Program Law of 27 December 2012 implementing some of the budget 2013 measures (Kamer | Chambre - Staatsblad | Moniteur) introduces some changes (e.g. in relation to the reference period to calculate the amount exceeding the € 30,000 threshold) and provides further details on how to calculate if – and to what extent – the € 30,000 threshold is exceeded. More detailed information can be found on the dedicated Budget 2013 website.
The Program Law of 22 June introduces a mandatory outsourcing for individual pension schemes ("individuele pensioentoezeggingen” / “engagements individuels de pension”) for all new and all existing individual pension schemes funded through internal accruals or “keyman” insurance agreements (“bedrijfsleidersverzekeringen” / “assurances dirigeant d’entreprise”):
However, a transitional regime is foreseen for the existing individual pension schemes:
These exceptions only remain available as long as the individual pension scheme is not outsourced.
In summary, except in the case where the individual pension scheme is funded by a “keyman” insurance contract which is concluded before 1 July 2012, all contributions and payments in relation to individual pension schemes will need to be outsourced, i.e. be funded via an insurance company or a pension fund, for accounting years ending on or after 1 January 2012. Payments in respect of such pension schemes are subject to the 4.4% insurance premium tax.
Similarly the scope of application of the Law Supplemantary Pensions / LSP (Wet betreffende de aanvullende pensioenen or “WAP” / Loi relative aux pensions complémentaires ou “LPC”) is broadened to include the individual pension schemes for employees existing prior to 16 November 2003.
A transitory period of one year as from the publication of the Program Law in the Belgian Official Gazette (i.e. until 28 June 2013) is foreseen to align the existing individual pension agreements with the new rules of the LSP.
Pension accruals existing at the end of the last financial year closed prior to 1 January 2012 that would be outsourced will be exempt from the 4.4% insurance premium tax. The exemption from the 4.4% insurance premium tax is not limited in time.
An exemption from the 4.4% premium tax is also introduced for the one-shot premiums paid or the contributions made in relation to the tax-neutral transfer of acquired rights in relation to life insurance contracts (“kapitalen en afkoopwaarden” / “capitaux et valeurs de rachat”) as mentioned in article 515novies of the Income Tax Code.
The premium tax exemptions are applicable as of 1 January 2012 for the outsourcing of internal pension accruals and as of 1 July 2012 for the transfers of acquired rights in relation to the qualifying life insurance contracts.
The currently already existing tax exemption for income tax purposes for the voluntary outsourcing of internal extra-legal pension accruals which have been constituted prior to the entry into force of the LSP is extended to the outsourcing of the internal accruals for extra-legal pensions which have been constituted at the end of the last accounting year with closing date before 1 January 2012. The possibility to outsource existing internal accruals for extra-legal pensions with tax neutrality will not be limited in time, but the exemption will only be available to the extent that the so-called “80%-rule” is complied with.
Tax-exempt outsourcing would not be allowed for a capital:
Internal pension accruals constituted in breach of the legal provisions will not qualify for tax-neutral outsourcing. The new rules would be applicable to internal accruals which are outsourced as of 1 January 2012.
A similar exemption regime is introduced for the outsourcing of internal pension promises funded through so-called “keyman insurance contracts”. The 80%-rule also applies to the outsourcing. In such case, the possibility for tax-neutral outsourcing is limited in time and will only be possible within a 3-year period starting as of 1 July 2012. The tax-exemption will be available for acquired rights (“kapitalen en afkoopwaarden” or ”capitaux et valeurs”) which are transferred as from 1 July 2012.
Internal pension accruals existing at the end of the last financial year closed prior to 1 January 2012 will be subject to a special taxation at 1.75%. This 1.75% tax is not tax-deductible and is due irrespective of whether or not the existing accruals would be outsourced. The tax will be levied together with the (ordinary) income tax in relation to tax year 2013 and may be spread over 3 years at 0.6% per year.
As from 1 January 2013, payments by the employer in relation to extra-legal pension schemes are only tax deductible if duly reported to a pension database in order to allow a better audit of the so-called 80%-rule. A similar condition is introduced for pension and allowances (“renten” or “rentes”) directly paid by the employer as well as for the internal accruals which have been constituted in view of such extra-legal pension schemes or allowances.
The deduction of company car expenses varies currently from 50% to 100%, depending on the CO2 emission level and the fuel type (or even 120% for electric cars). Fuel costs are deductible up to 75%. Under current practice, the disallowed expenses in the hands of the company can be reduced with the benefit in kind reported in the hands of the beneficiaries. According to a recent decision of the Antwerp Court of Appeal (17 May 2011), this reduction can also be applied for the personal contributions paid by the beneficiaries.
In the Law of 28 December 2011 containing miscellaneous measures (Dutch | French), a new additional disallowed expense for company cars has been introduced. This additional disallowed expense equals 17% of the benefit in kind for the beneficiary (i.e. 6/7ths of the car’s list price X the CO2 coefficient X age factor). This new, additional disallowed expense will constitute the company’s minimum taxable base (code 112 of the tax return). In case the company has a tax loss to be carried forward, the minimum taxable base will not impact the amount of the carry-forward (i.e. the carry-forward will not be increased with the minimum taxable base).
The new additional disallowed expense applies to benefits in kind granted as of 1 January 2012.
Note that this disallowed expense also becomes taxable for entities referred to in Article 220, 2° and 3° ITC subject to the legal entities tax.