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New draft tax law on restructurings may have wider tax implications

Corporate Tax Alert | Business Tax alert

On 19 October 2023, a draft law relating to miscellaneous tax measures was submitted to Belgium’s federal parliament. One of the objectives of the draft law is to realign the autonomous tax definitions for mergers and divisions with the company law definitions that were updated in June 2023 to reflect the modifications required by Directive (EU) 2019/2121 (referred to as “the EU mobility directive”) amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers, and divisions. The amendments are also intended to ensure that the transposition of the company law directive has full effect for tax purposes.

Three changes to the existing tax definitions in relation to reorganisations are proposed:

  • The introduction of the triangular merger without the issue of new shares;
  • The option to remunerate a partial demerger with shares of the demerging company instead of, or in combination with, shares issued by the beneficiary company; and
  • The option to remunerate the partially demerged company, instead of its shareholder(s), with shares of the beneficiary company (only applicable for cross-border partial demergers).

If approved, the changes would apply retroactively as from 16 June 2023 in line with the date of implementation of the EU mobility directive.

Triangular merger without the issue of new shares

The triangular merger without the issue of new shares would only apply where both the absorbed company and the absorbing company are held by a single common shareholder or where multiple shareholders hold the same pro rata holding of shares in both companies.

This new concept is likely to be very relevant in practice as Deloitte Belgium have observed that this merger type is commonly used in neighbouring countries that have previously adopted the simplified merger procedure. The proposed change would also have the secondary effect of facilitating simplified mergers of EU companies held by a Belgian corporate shareholder.

However, questions arise as to whether the proposed changes are sufficient to safeguard the tax neutrality of these mergers in a Belgian context. Based on a strict reading of Belgian tax law, it would appear that these simplified mergers could lead to a deemed dividend distribution, triggering taxation of certain tax free reserves and potential withholding tax obligations.

Although the narrative on the objective of the legislation is very concise, we expect this to be an unintended consequence of the proposed law change.

Option to issue shares of the partially demerged company

Currently, a partial demerger may be remunerated only by the issue of shares of the beneficiary company. The second proposed modification in the draft law would provide the option also to remunerate a partial demerger with shares of the partially demerged company or with a combination of shares of both the beneficiary and partially demerged companies. Although this feature may be interesting in situations where the partial demerger is primarily intended to override existing shareholder structures, an issue of only new shares of the partially demerging entity may give rise to discussions concerning, for example, the normal or arm’s length nature of the transaction or the indirect tax consequences thereof.

Hybrid between a partial demerger and a hive-down

The third modification is intended to extend the cross-border partial demerger with the option to issue new shares to the partially demerged company instead of its shareholder(s). The amendment would create a hybrid transaction, combining features of a partial demerger and a contribution in kind (hive-down).

The memorandum of understanding (MoU) accompanying the draft law rightfully highlights the discrepancy that this would create between domestic and cross-border transactions, although the MoU appears to confuse the domestic partial demerger (not requiring a line of business) and the domestic contribution of a line of business. From that perspective, it could be questioned whether this proposed new hybrid form would successfully pass the nondiscrimination test. 


Although the draft law is a well-intentioned initiative to restore consistency between the company law and tax definitions of mergers and divisions, it appears that the wider tax ramifications of certain aspects of the proposal have not been considered. Hopefully, these anomalies will be addressed appropriately during the legislative process.

It also should be appreciated that the company law changes to cross-border restructurings continue to create many practical difficulties, such as obtaining tax certificates for companies that are subject to a tax audit, the documents to be provided to the notary public to obtain a merger certificate, and the three-month waiting period as from the date of publication of the joint merger proposal in the framework of the new creditor’s protection mechanism. The expectation is that most of these issues will be resolved with time, but meanwhile uncertainty remains a significant element of many such transactions.