Base erosion and profit shifting (BEPS)
The OECD’s Action Plan on BEPS was published in July 2013 with a view to address perceived flaws in international tax rules. The Action Plan identifies actions needed to address BEPS, sets deadlines to implement these actions, and identifies the resources needed and the methodology to implement these actions. The Action Plan contains 15 separate action points with three key themes: coherence, substance, and transparency. The Plan is focused on addressing these issues in a coordinated, comprehensive manner, and was endorsed by G20 Leaders and Finance Ministers at their summit in St. Petersburg in September 2013. Belgium has also been actively involved in this initiative and is likely to endorse and/or implement the outcome of the Action Plan.
On 5 October 2015, the OECD presented its final package of BEPS measures for a comprehensive, coherent, and co-ordinated reform of the international tax rules. The package was endorsed by the G20 Finance Ministers at their meeting on 8 October 2015, in Lima, Peru. It is expected that, following the release of the final package, unilateral measures will be introduced into the Belgian legislation in line with the OECD final package.
The so-called ‘Cayman Tax’, introduced as of 1 January 2015, is a taxation regime in the Belgian income tax code that introduces a tax transparency of certain legal constructions that have been set up or that are being held by Belgian private individual tax residents (and Belgian entities subject to legal entities income tax).
The income of certain qualifying entities will be taxed directly in the hands of these individuals if they are to be considered as founder, as if they would have received the income directly. The income from the legal construction will be taxable in the hands of the founder, Belgian tax resident, as real estate income, movable income (interest, dividends, and royalties), miscellaneous income, or professional income. Distributions to beneficiaries, Belgian tax residents, of the legal constructions will be taxed as a dividend distribution. Only to the extent that distributions by a legal construction stem from income that has already been taxed in Belgium, or to the extent the distribution is a repayment of the assets that were initially contributed into the legal construction, these distributions are not considered to be taxable dividend distributions.
The legal constructions in scope include, among others, trusts, foreign foundations, certain undertakings for collective or individual investments or pension funds when not publicly offered, low-taxed or non-taxed entities, etc. to which the Belgian tax resident is, in one way or another, linked as a founder, an effective beneficiary, a potential beneficiary, etc.
For the application of the Cayman Tax, a distinction is made between three categories of legal constructions: (i) trusts and other structures without legal personality (type 1), (ii) foreign entities with legal personality that are subject to an effective tax rate of less than 15% calculated according to the rules of Belgian income tax law (type 2), and (iii) a type 1 or type 2 legal construction wrapped up in an agreement, such as a life insurance contract, will be considered as a third type of legal construction (type 3).
In this respect, the type 2 legal constructions are listed in two Royal Decrees, dated 18 December 2015 (exhaustive list of entities within the EEA) and 23 August 2015 (non-exhaustive list of entities outside the EEA). On 3 December 2018, a new Royal Decree, dated 21 November 2018, was published in the Belgian Official Gazette, amending the existing Royal Decree of 18 December 2015. The new Royal Decree of 21 November 2018 now introduces three categories of legal constructions within the EEA that will be considered as legal constructions, potentially in scope of Cayman Tax, going forward:
- Investment vehicles (private UCIs and AIFs) that are held by one individual or several individuals who are related to each other, including SICAV-SIF’s.
- The so-called hybrid entities, i.e. legal structures that are not transparent for Belgian income tax purposes, but that are tax transparent in the jurisdiction within the EEA where they are established. However, hybrid entities where the shareholders pay at least 1% income tax, compared to the income tax that would be due in Belgium, in the country of establishment are excluded. Also, the so-called ‘translucent companies’, for example the French ‘Société Civile Immobilière’, that have legal personality but where income tax is levied in the hands of the shareholders, are excluded.
- Entities with legal personality established in the EEA that are not subject to income tax or that are subject to an income tax that is less than 1% of the taxable income as determined in accordance with the rules applicable under Belgian income tax law. This 1% threshold will only be applicable to entities that do not fall in the scope of category 1 or 2 (priority rule).
The entities as defined under 2 and 3 are not considered to be legal constructions if the income derived by the legal construction would be exempted from Belgian income tax under the applicable DTT if the Belgian tax resident would have received the income directly. Please bear in mind that the Royal Decree will be applicable for income received, granted, or made payable by legal constructions as of 1 January 2018.
FATCA, CRS, and DAC2
Goal of FATCA and CRS
FATCA (a United States [US] initiative: US Foreign Account Tax Compliance Act) and CRS (an OECD initiative: Common Reporting Standard) aim to tackle offshore tax evasion via a shared objective of Automatic Exchange of Information (AEoI) in Tax Matters. Although CRS relies to a large extent on the FATCA system, there are noticeable differences, and interpretation can also substantially vary across different jurisdictions.
In a nutshell, financial institutions have to comply with registration, due diligence, and reporting obligations with respect to: (i) accounts held by specified US persons (FATCA) or reportable residents of other participating states and (ii) accounts held through certain non-financial entities qualifying as 'passive' (or passive NFEs), which are controlled directly or indirectly by private individuals who are reportable persons.
The US Congress enacted FATCA in 2010. FATCA is applicable in other jurisdictions in either of the following situations:
- A Model I Intergovernmental Agreement (IGA) was signed by the relevant jurisdiction: Local financial institutions are obligated to report to the local tax authorities, who will then forward the information to their relevant foreign counterpart.
- A Model II IGA was signed by the relevant jurisdiction: Financial institutions will directly report to the US Internal Revenue Service (IRS).
- The relevant jurisdiction has not concluded an IGA with the United States: FATCA is imposed unilaterally by the US Treasury Regulations released by the US Department of the Treasury and the IRS.
Belgium entered into a Model I IGA (Belgian IGA) with the US authorities on 23 April 2014, which was implemented into Belgian domestic law through the Act of 16 December 2015.
On 20 April 2015, the Belgian tax authorities published draft Belgian Guidance Notes on the Belgian IGA related to FATCA, which are subject to modifications, but can offer more insight on certain FATCA concepts.
Financial institutions should already have made four FATCA reportings (one regarding the second half of 2014, the next relating to 2015, and the third and fourth FATCA reporting, 2016 and 2017 information, were due by 30 June 2017 and 30 June 2018, respectively).
On 15 July 2015, the OECD approved its CRS on AEoI. This model has been endorsed by more than 100 countries so far (Belgium is amongst the early adopters).
At the European level, the CRS was integrated in the EU Directive on Administrative Cooperation in Tax Matters (DAC2) of 9 December 2014, which had to be implemented in member states’ national legislation by 31 December 2015.
The Belgian Act of 16 December 2015 gives a legal basis to AEoI in Belgium (including FATCA and CRS). It has implemented the Belgian IGA together with the DAC2 into Belgian domestic law.
On 14 March 2017, the Belgian tax authorities have published the Belgian Guidance Notes on CRS (version 1), which contain valuable clarifications on the practical application of the CRS and DAC2.
The Royal Decree of 14 June 2017 implements the Act of 16 December 2015 relating to the international AEoI for tax purposes. Amongst other things, the Royal Decree lists ‘other reportable jurisdictions’ (non-EU states) based on the year during which the first CRS reporting will be required (2017 or 2018).
Automatic exchange of advance cross-border tax rulings and APAs (DAC3)
The DAC3 Directive dated 8 December 2015 requires member states to automatically exchange a basic set of information on advance cross-border tax rulings ('rulings') and advance pricing arrangements ('APAs'), which are broadly defined.
From 1 January 2017, member states have to include information within three months following the end of the half of the calendar year during which the advance cross-border rulings or APAs have been issued, amended, or renewed. For rulings and APAs issued before 1 January 2017, a five-year look-back period applied.
The Act of 31 July 2017 transposes DAC3 into Belgian domestic law and foresees a retroactive application by requesting the exchange of reportable cross-border rulings and APAs from 2012 till 2016. Before the entry into force of this Act, reportable rulings and APAs were in practice already exchanged to a certain extent. Also, the Flemish Region and the Walloon Region have transposed DAC3 into regional law.
Country-by-country (CbC) report (DAC4)
The Act of 1 July 2016 and the Royal Decrees of 28 October 2016 have introduced the product of the OECD’s BEPS Action 13 in Belgian tax law (see Transfer pricing in the Group taxation section). As a result, multinational groups with operations in Belgium should, under certain circumstances, submit a so-called CbC report. The CbC report is automatically exchanged between competent authorities (cf. DAC4 as transposed by the Act of 31 July 2017).
UBO register (see also DAC5)
The Act of 18 September 2017 introduces the creation in Belgium of a centralised register of ultimate beneficial owners (UBO register) in accordance with the fourth Anti-Money Laundering Directive (2015/849) of 20 May 2015.
As of 16 October 2017, companies, Belgian or international non-profit organisations, and foundations are required to collect and hold information on their beneficial owners. The register should contain at least their name, date of birth, nationality, and country of residence, as well as the nature and extent of the beneficial interest held. A UBO is defined as any private individual who directly or indirectly controls or owns a company or another legal entity incorporated in Belgium, holding 25% of the shares, voting rights, or ownership interest. If no UBO can be appointed, the senior management personnel of that entity will be considered to be the UBOs.
Based on a Royal Decree of 14 August 2018, the Belgian UBO register will be accessible to the competent authorities, eligible entities, and each citizen, even without any legitimate interest. To have access, citizens need to pay an administrative cost. Conditional access to the information in the UBO register is granted for foundations, non-profit organisations, and trusts. Every access to the register will be saved and can be traced during ten years. A beneficial owner can file a request to restrict the disclosure of the registered information for citizens and organisations, provided there is a high risk on fraud, abduction, extortion, intimidation, or when the beneficial owner is a minor or not legally competent.
The deadline for first registration to the UBO register is extended from 30 November 2018 to 31 March 2019.
Disclosure and exchange of cross-border arrangements by tax advisers (DAC6)
On 25 May 2018, the EU adopted new EU mandatory disclosure rules (so-called DAC6 directive), which aim to strengthen tax transparency and deter aggressive tax planning. These new rules require disclosure to tax authorities of cross-border arrangements entered into by taxpayers that fall within certain broadly-defined hallmarks. Some of the hallmarks, but not all of them, will only apply where the main benefit, or one of the main benefits, of the arrangement is to obtain a tax advantage (so-called main benefit test). DAC6 also mandates automatic exchange of the disclosed information among member states and gives the EU Commission (partial) access to it.
When there is an intermediary (such as a tax adviser) based in an EU member state, that intermediary will be required to make the disclosure. If no intermediary is required to report the transaction, the obligation passes to the taxpayer. This is likely to apply if arrangements are implemented without taking external advice, where advice is taken outside the European Union, or when advisors are subject to legal professional privilege (provided that this exception is introduced in domestic law).
DAC6 entered into force on 25 June 2018 and will become fully operational on 1 July 2020. The new rules will have to be transposed into Belgian domestic law by 31 December 2019. If the first step of a reportable cross-border arrangement is implemented between 25 June 2018 and 30 June 2020, the arrangement will need to be disclosed by 31 August 2020 (transitional rule).