Updated position of ruling commission on the reinvestment commitment in the framework of tax-neutral restructurings

In the complex world of corporate restructurings, companies often face a delicate balance between legitimate tax planning and the risk of tax avoidance. The Belgian ruling commission has recently updated its position on the reinvestment commitment related to tax-neutral (partial) demergers or contributions, especially when followed by a third-party sale of the shares of the companies involved in the restructuring. Often, this relates to situations where real estate is separated from the operational business. This updated guidance offers a nuanced approach that recognises the evolving needs of businesses while maintaining tax integrity (Dutch | French).

Understanding the context

When a company decides to divest a business unit or sell part of its operations, the decision is rarely driven by tax considerations alone. Market conditions change, and strategic priorities evolve. However, the way a company structures such a transaction can have significant tax implications.

For example, a direct sale of assets typically triggers immediate taxation on any unrealised gains, real estate transfer taxes (as applicable) and may also lead to withholding taxes when the proceeds are distributed to shareholders. In contrast, if such sale is structured through a share deal (via a tax-neutral restructuring), this may defer or even eliminate these taxes, providing a more tax-efficient outcome.

Rather than prohibiting this restructuring approach outright, the ruling commission has introduced a few years ago a reinvestment commitment, which has now been formalised. This mechanism supports the genuine business rationale behind the restructuring while ensuring that tax benefits are not exploited improperly.

This clarification is particularly welcome given the complex and often case-specific nature of corporate restructurings. Recently, the Antwerp Court of Appeal (case no. 2024/AR/808) provided important guidance on the application of Belgium’s anti-abuse provisions in the context of group restructurings involving share transactions. The Court confirmed that choosing a share transaction over an asset deal does not, in itself, constitute tax abuse - even if it results in more favorable tax treatment - provided the transaction is supported by genuine business reasons.

Amount to be reinvested

The reinvestment amount depends on whether the shareholder is an individual or a corporate entity.

Individual Shareholders

The reinvestment amount equals the sale price of the shares, reduced by:

• Direct selling costs paid personally by the shareholder, such as commissions related to the transaction.

• Tax payable by the individual on the capital gain realised from the sale of shares.

Other expenses, including legal fees, advance ruling costs, or transaction coordination fees, are not deductible from the sale price.

Individual shareholders must reinvest this amount into the share capital of an existing or newly formed company, which then needs to invest these funds accordingly in qualifying investments (cf. below).To ensure that these reinvested funds remain within the company, a prohibition on capital reduction to these individual shareholders applies. This restriction lasts until the company is liquidated, although dividend distributions remain permitted.

Corporate Shareholders

The reinvestment amount is limited to the hypothetical capital gain that would have been taxed if the activity were sold directly through an asset deal. This is calculated as: Transfer price of the shares, minus book value of net assets, minus exempt capital gain on underlying participations (as applicable).

Corporate shareholders must reinvest this amount in qualifying investments themselves. In specific cases, however, it may be permitted for these funds to be distributed or made available via a loan to another group company, which will subsequently carry out the investment.

Investments

Only investments within the European Union are accepted, and these may include:

• Durable investments in tangible, financial, and intangible fixed assets;

• Other investments such as shares, cash investments, fixed-income securities, and term deposits, provided these assets are held long-term and generate taxable income or dividends;

• Repayment of external bank debts that reduce interest expenses within the group.

Conversely, he following investments are not accepted: 

• Purchase of own shares;

• Real estate or goods made available to shareholders or managers (e.g., vehicles, furniture);

• Luxury goods as defined by Belgian tax law;

• Assets purchased from other group companies or obtained through contributions, mergers, or (partial) demergers;

• Loans to group companies or individual shareholders;

• Repayment of debts to group companies or individual shareholders.

Term

The investment period generally starts on the date of the share sale but earlier investments may also be acceptable (e.g., as from the legal date of the (partial) demerger or contribution). For individual shareholders, the reinvestment into the share capital a company must occur within three months of receiving the sale proceeds.

The investment period for the reinvesting company ends six months before the expiry of the three-year statute of limitation period for the relevant tax year. For earn-out or deferred payments received outside this timeframe, a two-year reinvestment period applies from the date of receipt.

Applicants seeking an advance ruling must submit a detailed report of their investments (or debt repayments) to the local tax audit service no later than six months before the end of the three-year limitation period.

Relevance

This updated position from the Belgian ruling commission provides clearer, more practical guidance for companies planning future restructurings. It helps taxpayers understand the reinvestment amounts required and the types of investments that qualify, thereby supporting legitimate business restructuring while safeguarding the tax-neutral treatment. It is important to note that the position only covers (federal) income tax and not (regional) real estate transfer tax. Companies with the intent to restructure, need to plan and report more rigorously, with full transparency to the local tax office.