The ‘Cayman Tax’ is a taxation regime that was introduced as of 1 January 2015 in the Belgian Income Tax Code. The regime 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).
Concerning the legal construction, a distinction is made between three categories: (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 or in a jurisdiction which, at the end of the taxable period, is included in the EU-list of non-cooperative jurisdictions (type 2), and (iii) a type 1 or type 2 legal construction wrapped up in an agreement (type 3).
Regarding the type 2 legal constructions, two Royal Decrees with additional guidance were published dated 18 December 2015 (exhaustive list of entities within the European Economic Area [EEA]) and 23 August 2015 (non-exhaustive list of entities outside the EEA).
However, recently, the Royal Decree dated 18 December 2015 was replaced by a Royal Decree dated 3 December 2018 (applicable as from 1 January 2018) putting the following entities under the scope of the Cayman Tax:
- The so-called 'dedicated investment vehicles' (private UCI’s and AIF’s) 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 European Economic Area where they are established. However, hybrid entities are excluded where the shareholders pay a minimum of 1% income tax, compared to the income tax that would be due in Belgium, in the country of establishment.
- Entities with legal personality established in the European Economic Area, 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 double tax treaty (DTT), if the Belgian tax resident founder of the legal construction would have received the income directly.
The Royal Decree dated 23 August 2015 was complemented by a Royal Decree dated 16 May 2019 (applicable as from 1 January 2019). Now, just like for entities within the European Economic Area, certain investment vehicles and hybrid entities fall within the scope of the Cayman Tax.
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 several FATCA reportings.
The latest news on this topic is regularly published on the official website of the Belgian Federal Public Service FINANCE (in French and Dutch): https://finances.belgium.be/fr/E-services/fatca
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. An update (version 2) was published on 28 August 2017.
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 is required.
The latest news on this topic is regularly published on the official website of the Belgian Federal Public Service FINANCE (in French and Dutch): https://finances.belgium.be/fr/E-services/crs
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 must 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).
The latest news on this topic is regularly published on the official website of the Belgian Federal Public Service FINANCE (in French and Dutch): https://finances.belgium.be/fr/entreprises/international/prix-de-transfert-beps-13
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 30 July 2018 (recently modified by the Royal Decree of 23 September 2020 – see below), the Belgian UBO register is 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. 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.
- As of the 1st October 2020, all companies, (international) non-profit organisations, foundations, trusts and legal entities comparable to trusts under Belgian law are required to upload in the UBO-register any document that supports and demonstrates the adequacy, accuracy and topicality of the registered data. This could be one of the following documents: a copy of the share register, the articles of association of the company, agreements relating to the transfer of shares, notarial deed, ID card or passport of the UBO or any other document (legalised as originating from a third country). Only the competent authorities will have access to these uploaded documents.
- The weighted percentage of shares or voting rights that the indirect UBO holds or controls in the obliged entity and in each intermediary entity must be recorded, whereas previously only the registration of the so-called weighted percentage in the obliged entity was required. The practical registration in the UBO register however already required input of the specific information of the intermediary entities. This change therefore has no real significant impact on the practical registration but is a confirmation.
- Prior to the registration of their beneficial owners, trusts, fiduciaries and similar legal structures obliged to provide information, must register with the Crossroads Bank for Enterprises in accordance with the provisions of the Code of Economic Law.
- Finally, from now on, not only the currently registered information will be accessible, but also the complete history of the registration.
The latest news on this topic is regularly published on the official website of the Belgian Federal Public Service FINANCE (in French and Dutch): https://finances.belgium.be/fr/E-services/ubo-register
Disclosure and exchange of cross-border arrangements by tax advisers (DAC6)
On 25 May 2018, the Council Directive adopted the (EU) Directive 2018/822 (implemented in Belgium by the Act of 20 December 2019 and the Royal Decree of 20 May 2020) (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.
DAC6 has been implemented by a federal law of 12 December 2019 that closely follows the Directive, and by the Regions. In June 2020, the Belgian tax authorities published an FAQ with further guidance on the application of the DAC6 rules.
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 also applicable if arrangements are implemented without taking external advice, where advice is taken outside the EU, or when advisors are subject to legal professional privilege.
The Belgian implementation law foresees that an intermediary may potentially not be allowed to actually report following the Belgian professional secrecy rules that apply to, e.g., registered lawyers and registered tax consultants. In this case, the intermediary has to inform the taxpayer and/or other intermediaries (if any) that there is a reporting obligation due but that the actual reporting is prevented due to legal professional secrecy rules. This is known as the so-called 'legal professional privilege'. If there are no other intermediaries, the taxpayer can, at all times, waive the professional secrecy enabling the advisor to make the reporting. The professional secrecy rules do not apply for reporting obligations related to so-called ‘market-ready’ arrangements.
Penalties ranging from EUR 1,250 to EUR 100,000 per infraction may be applied by the tax authorities (cf. Royal Decree of 20 May 2020). The intentional character (or not) of the breach will be considered.
The law provides that the reportable cross-border arrangements whose first implementation step occurs between 25 June 2018 and 1 July 2020 are to be reported as of 1 July 2020, and by 31 August 2020 at the latest. As of 1 July 2020, there is a 30-day turnaround period to report to the domestic tax authorities. Due to the COVID-19 pandemic and following a European proposal for an amending council directive, the Belgian government has granted a six-month delay to fulfil the first reporting obligations under the DAC6 legislation by way of administrative tolerance. In practice, this means the following:
- The new date for the beginning of the period of 30 days for reporting is 1 January 2021 (instead of 1 July 2020). This is applicable to any cross-border arrangement that becomes reportable as of 1 July 2020 till 31 December 2020 and from 1 January 2021 onwards.
- The new date for the reporting of the historical reportable cross-border arrangements (i.e. arrangements in the period from 25 June 2018 to 30 June 2020) is 28 February 2021 (instead of 31 August 2020).
- The first periodical report on marketable arrangements is due by 30 April 2021.
- The first exchange of information between EU member states on reportable cross-border arrangements will accordingly also be deferred.
The latest news on this topic is regularly published on the official website of the Belgian Federal Public Service FINANCE (in French and Dutch): https://finances.belgium.be/fr/E-services/mandatory-disclosure-rules