Draft bill implementing EU Pillar Two directive submitted to Belgian parliament

On 13 November 2023, a draft bill (Dutch | French) was submitted to the Belgian parliament to introduce the Pillar Two minimum effective tax rate of 15% into Belgian law for multinational enterprise groups (MNEs) or large domestic groups with consolidated annual revenues exceeding EUR 750 million.

The draft bill stems from the EU council directive ensuring a global minimum level of taxation for MNEs ("the EU Pillar Two directive”) which in turn originates from the broad political agreement reached by over 135 members of the OECD/G20 Inclusive Framework on BEPS on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy.

As anticipated, the draft bill closely resembles the EU Pillar Two directive (incorporating the OECD Pillar Two model rules) and introduces some welcome adjustments to the Belgian Income Tax Code (ITC) to ensure competitiveness and align the existing rules with the proposed Pillar Two rules, most notably an update to Belgium’s research and development (R&D) tax credit regime so that the credit meets the definition of a “qualifying refundable tax credit” under the global anti-base erosion (GloBE) rule.

Another significant aspect of the Belgian draft legislation is the proposal to introduce a prepayment system for the collection of certain of the new taxes payable.

The draft bill is expected to be approved by the end of the year, with provisions applying as from 1 January 2024 for calendar year taxpayers.

Key features of the Belgian Pillar Two draft bill

Presented as a separate tax act (i.e., not integrated into the ITC), the draft bill introduces three mechanisms for Belgium to impose a minimum tax on low-taxed income within a group:

• A qualified domestic minimum top-up tax (QDMTT) ensuring that low-taxed Belgian entities within the scope of the legislation are first subject to a local (Belgian) top-up tax on their profits;

• An income inclusion rule (IIR) granting Belgium the right to tax low-taxed profits as the jurisdiction of residence of the (ultimate or intermediary) parent entity of a group; and

• An undertaxed profits rule (UTPR) granting Belgium the right to tax where the low-tax jurisdiction or parent entity’s jurisdiction has not yet implemented an IIR or a QDMTT.

The draft bill incorporates transitional safe harbour rules both for the application of the QDMTT and the IIR/UTPR to alleviate the immediate administrative burden of having to perform detailed calculations for certain “low-risk” jurisdictions.

Additionally, the draft bill introduces some adjustments to the Code of Tax Recovery and the ITC to ensure competitiveness and align certain existing rules with the proposed Pillar Two rules. It also stipulates that additional technical aspects of the rules (e.g., a list of qualifying IIRs and QDMTTs, model corporate income tax return forms, the determination of penalties) will be addressed in future royal decrees.

Updated R&D tax credit regime

A notable amendment to the ITC is the proposed update to the R&D tax credit regime to meet the GloBE rule definition of a “qualifying refundable tax credit,” with the possibility to elect to carry forward unused tax credit to the subsequent three tax years (instead of four), and the option to use the credit to offset taxes payable over four years (instead of five) or receive a refund of unused credit. This results in an overall more favourable outcome for the purposes of the effective tax rate under the GloBE rules than if the credit had been treated as a nonqualifying refundable tax credit.

Filing and compliance

As anticipated, the IIR and QDMTT are scheduled to come into effect on 31 December 2023 (i.e., as from 1 January 2024 for calendar year taxpayers) whereas the UTPR would come into effect on 31 December 2024 (i.e., as from 1 January 2025 for calendar year taxpayers). Separate tax returns would be required to be filed to collect these taxes (i.e., one for the QDMTT and another for the IIR or UTPR).

The Belgian draft legislation also includes a proposal to introduce a prepayment system for the collection of the QDMTT and the tax payable under the IIR. This would be linked to a tax increase for insufficient prepayments, similar to the provisions for corporate income tax contained in articles 157 to 168 of the ITC, although, for the first year of implementation, prepayments made in any quarter of the year would be weighted equally. For the second and subsequent years, the regular prepayment system would apply and prepayments made in an earlier quarter would result in a lower tax increase for insufficient payments.

Finally, the investigation and assessment periods would be 10 years as Pillar Two tax returns would be considered “complex” tax returns.

Comments

With some of the new provisions likely to apply as from 1 January 2024 for calendar year taxpayers, and taking into account the prepayment system and accounting reporting requirements, it will be crucial for in-scope groups to act quickly, evaluate the potential impact of the proposed legislation, and prepare for the data collection challenges that the new rules may bring.

The implementation of a global minimum 15% tax involves operational and compliance complexities for which businesses need to be prepared. Pillar Two introduces new calculations and reporting obligations that require companies to have appropriate systems and processes in place to identify, gather, and process the required data. These new calculations differ from existing reporting requirements, and tax and accounting teams need to collaborate closely to enhance reporting and data analytics capabilities.

How can Deloitte help?

Deloitte’s OECD Pillar Two Tax Advisory service brings together the expertise of Deloitte tax specialists and the analytical power of our data and technology solutions to help multinational businesses assess and evaluate the tax implications of global tax reform. We offer support for everything from initial gap assessment, through tax impact analysis, to implementation, including these end-to-end services:

• Policy monitoring;

• Impact assessment modelling;

• Data assessment;

• Finance system enhancement;

• Tax technology;

• Technical advisory;

• Accounting and tax provision; and

• Global compliance.