Belgium

Cayman Tax

The ‘Cayman Tax’ was introduced as of 1 January 2015 in the BITC and was recently adjusted by the Program law of 22 December 2023. The regime introduces a tax transparency of certain legal arrangements that have been set up or that are being directly or indirectly held by Belgian private individual tax residents (and Belgian entities subject to legal entities income tax).

More precisely, the Cayman Tax targets the ‘founder’ of the legal arrangement in its broad sense. That concept includes, among others, any direct or indirect shareholder of an entity, whether or not the foreign entity is controlled by the Belgian founder and irrespective of any ownership threshold. Registered ultimate beneficial owners (UBOs) qualify as founders of the structure for tax purposes.

The Cayman Tax provides for three distinct taxable events:

• The receipt of income by a legal arrangement, which triggers a transparency taxation at the level of the founder based on a series of presumptions of income allocation.
• The allocation or payment of any sum by a legal arrangement, which triggers a taxation as dividend income.
• The deemed allocation or payment of income upon transfer events (including the founder moving its tax residency abroad), which also triggers a taxation as dividend income.

These three taxable events create a risk of double taxation, which is addressed by a reclassification of taxable dividends, under certain conditions, into exempted dividends.

Concerning the legal arrangement, a distinction is made between three categories:

1. trusts and other structures without legal personality (type 1),
2. 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
3. a type 1 or type 2 legal arrangement wrapped up in an agreement (type 3).

Regarding the type 2 legal arrangements, the tax applies to entities with a zero or lower than a 15% effective tax rate (according to the Belgian rules) or to those established in a country on blacklists (the EU list for non-cooperative jurisdictions or the Belgian list for countries with a low tax regime or zero tax regime). Further, the following entities fall in the scope of the Cayman Tax:

• The so-called 'dedicated investment vehicles' (private UCIs and AIFs) that are held by one individual or several individuals who are related to each other, including SICAV-SIFs.
• 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 where they are established. However, hybrid entities established in the European Economic Area are excluded where the shareholder pays a minimum of 1% effective tax rate (according to the Belgian rules) on its share of the entity’s taxable income.
• Entities with legal personality established in the European Economic Area that are not subject to income tax or that are subject to an effective income tax rate lower than 1% (according to Belgian rules). This 1% threshold will only be applicable to entities that do not fall in the scope of category 1 or 2 (priority rule).

The tax also does not apply to:

• a legal arrangement carrying out a substantive economic activity (which cannot consist in the management of the private assets of the founder), supported by personnel, equipment, goods, and premises, and which is established in a state with an exchange of information agreement in place
• income from the legal arrangement already taxed at the level of a Belgian company in application of the Belgian CFC rules or at the level of another founder in application of the Cayman Tax, and
• largely held funds (as opposed to ‘dedicated investment vehicles’).

Besides taxation, founders are also obligated to report legal constructions in their annual income tax returns. This reporting must include detailed information on the legal arrangements involved, their administrators, and financial data, thereby enabling a precise tax audit at a later stage.

Transparency

FATCA, CRS, and DAC2

Goals

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 due diligence and reporting obligations with respect to: (i) accounts held by specified US persons (FATCA) or reportable residents of other participating states (CRS) and (ii) accounts of certain non-financial entities qualifying as 'passive', which are controlled directly or indirectly by private individuals who are reportable persons. Financial institutions also have registration obligations under FATCA.

FATCA

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.

Of particular interest, on 24 May 2023, the Contentious Chamber of the Data Protection Authority decided to prohibit the processing of data of accidental Belgian Americans by the Belgian tax administration (Decision 61/2023). On 21 June 2023, the Belgian tax administration decided to file an appeal and a request for suspension of the execution of such a decision.

On 22 December 2023, the Market Court nullified decision 61/2023. The case has been referred back to the Contentious Chamber, with a different composition, for a new reasoned decision on the merits. Therefore, the exchange of information provided for in the FATCA agreement will continue according to the specified terms and schedule, according to the Federal Public Service Finance.

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

CRS/DAC2

On 15 July 2015, the OECD approved its CRS on AEoI. This model has been endorsed by more than 120 countries so far (Belgium has been amongst the early adopters).

At the level of the European Union, the main legal framework for administrative cooperation, including exchange of information, is the Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC (DAC).

The Council Directive 2014/107/EU of 9 December 2014 (DAC2) integrates the CRS into the DAC, and the Belgian Act of 16 December 2015 implements DAC2 into domestic law.

On 14 March 2017, the Belgian tax authorities 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. 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

AEoI of advance cross-border tax rulings and APAs (DAC3)

Council Directive (EU) 2015/2376 of 8 December 2015 (DAC3) completes the DAC by requiring EU 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, EU member states must exchange information twice a year (i.e. “within three months following the end of the half of the calendar year during which the 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 implements DAC3 into domestic law and foresees a retroactive application by requesting the exchange of reportable 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 (spontaneous exchange of information). DAC3 was also implemented at regional level.

Country-by-country report (DAC4)

The Council Directive (EU) 2016/881 of 25 May 2016 (DAC4) completes the DAC by providing for the AEoI on the country-by-country report (CbCR).

The Act of 1 July 2016 and the Royal Decrees of 28 October 2016 have introduced the results 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 CbCR.

Such CbCR is then subject to AEoI to other EU member states pursuant the Act of 31 July 2017 implementing DAC4.

The Belgian tax administration has adopted a circular in the form of a FAQ (Frequently Asked Questions) regarding BEPS action 13 (Circular 2020/C/88).

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

UBO register

Principles

The Act of 18 September 2017, modified a.o. by the Act of 8 February 2023, provides for the creation in Belgium of a centralised register of ultimate beneficial owners (UBO register) in accordance with Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the so-called 'fourth' Anti-Money Laundering Directive).

Companies, (international) non-profit organisations, and foundations (amongst others) 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 a company or another legal entity incorporated in Belgium, either by holding 25% of the shares / voting rights / ownership interest or otherwise. The weighted percentage of shares or voting rights that the indirect UBO holds or controls in the obligated entity and in each intermediary entity must be recorded. If no UBO can be identified, senior management of that entity will be considered to be the UBOs.

In addition to the initial registration of the UBOs, every change must be updated within the month and, moreover, the accuracy of the information must be confirmed annually. Not only the currently registered information is accessible, but also the complete history of the registration.

An entity is 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 have access to these uploaded documents.

As per the Royal Decree of 30 July 2018, modified by the Royal Decree of 8 February 2023, the Belgian UBO register is accessible to the competent authorities, sanctioning authorities, other authorities authorised to identify or monitor the ultimate beneficial owners, eligible entities, and each natural person or legal entity demonstrating a legitimate interest or, in some cases, who submits a written request.

The new provisions particularly alter the procedure for consulting the UBO register, in order to comply with the ruling of the Court of Justice of the European Union dated 22 November 2022 (joined cases C-37/20, Luxembourg Business Registers and C-601/20, Sovim). From now on, the situations considered to have a legitimate interest are as follows:

• The applicant is actively involved in combating money laundering, terrorist financing, and related criminal activities.
• The applicant is taking legal action to defend an interest related to the above activities.
• The applicant will engage in economic relationships or transactions with an obligated entity and is involved in activities relevant to preventing or fighting money laundering, terrorist financing, and related criminal activities.

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 of fraud, abduction, extortion, intimidation, or when the beneficial owner is a minor or not legally competent.

Access by tax authorities and exchange of information (DAC5)

The Council Directive (EU) 2016/2258 of 6 December 2016 (DAC5) completes the DAC by providing access to anti-money-laundering information to tax authorities. The latter has been implemented into domestic law by the Act of 26 March 2018 and Royal Decree of 12 May 2019.

The Belgian tax authorities will communicate any information contained in the UBO register in the case of a request from a foreign tax administration.

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

Exchange of information by 'intermediaries' on cross-border arrangements (DAC6)

Council Directive (EU) 2018/822 of 25 May 2018 (DAC6) completes the DAC as regards mandatory AEoI in relation to reportable cross-border arrangements. It aims at strengthening tax transparency and deterring aggressive tax planning. DAC6 was implemented in Belgium by the Act of 20 December 2019 and the Royal Decree of 20 May 2020. Regional decrees were also adopted to that end. In June 2020, the Belgian tax authorities published a FAQ with further guidance on the application of the DAC6 rules.

These 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 objectively 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 AEoI of disclosed information among EU member states and gives the EU Commission (partial) access to it.

When there is an intermediary (such as a tax advisor) based in an EU member state, that intermediary will be required to make the disclosure. If there is no intermediary required to report the transaction, the obligation will normally pass to the taxpayer. 

The Belgian implementation of DAC6 foresees that an intermediary bound by legal professional privilege (such as a lawyer or a registered tax advisor) has to inform the other intermediaries (if any) or the taxpayer that there is a reporting obligation due but that the actual reporting is prevented due to legal professional privilege rules. The legal professional privilege rules do not apply for reporting obligations related to so-called ‘marketable’ arrangements.

In Belgium, these specific rules are being challenged before the Constitutional Court (17 December 2020, 167-168/2020; 11 March 2021, 45-46/2021; 17 June 2021, 94-95/2021, 103/2022, 15 September 2022, 20 July 2023, 111/2023, 11 January 2024, 1-2-3-4/2024) and the Court of Justice of the European Union (Case C694/20, Orde van Vlaamse Balies and Others, 8 December 2022; Case C-623/22, Belgian Association of Tax Lawyers and Others, currently pending, see also AG’s opinion issued on 29 February 2024). Those cases have so far resulted in the annulment of certain legal provisions concerning the obligation of intermediaries subject to legal professional privilege (lawyers, registered tax advisers, accountants, etc.) to issue periodic reports of marketable arrangements, concerning the possibility for tax authorities to carry out tax audits with intermediaries subject to legal professional privilege, concerning the retroactive character of the reporting obligation for arrangements whose first stage was implemented before the entry into force of the relevant regional legislations, and concerning the obligation for the intermediary subject to a professional privilege to inform other intermediaries of their reporting obligations.

Other preliminary questions raised by the Belgian Constitutional Court to the CJEU concern the use of presumably vague and ambiguous concepts in DAC6 (arrangements in general, cross-border, marketable, and bespoke arrangements in particular, intermediary, participant, associated enterprise, hallmarks, main benefit test), the 30-day rule for reporting, and the scope of DAC6 in general (taxes covered, reporting not limited to non-genuine arrangements, etc.).

Penalties ranging from EUR 1,250 to EUR 100,000 per infringement may, in principle, be applied by the tax authorities. The intentional character (or not) of the breach will be considered.

The normal reporting deadline of 30 days is fully applicable since February 2021. A periodic report on marketable arrangements is also due every three months.

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

Reporting obligations for platform operators (DAC7)

Council Directive (EU) 2021/514 of 22 March 2021 (DAC7) completes the DAC as regards the AEoI for digital platform operators (both EU and non-EU platforms). DAC7 introduces specific obligations to collect, verify, and exchange information on their sellers with the tax authorities.

The scope of the Directive is very broad as the term platform covers “any software, including a website or a part thereof and applications, including mobile applications, accessible by users and allowing sellers to be connected to other users for the purpose of carrying out a relevant activity, directly or indirectly, to such users. It also includes any arrangement for the collection and payment of a consideration in respect of a relevant activity”.

It should be noted that DAC7 aims to cover both private individuals and companies that are sellers of the platform. The mere fact of being registered on the platform during the reportable period is sufficient to qualify as a 'seller' if one of the activities covered by the Directive is carried out for consideration, such as:

• the rental of immovable property, including both residential and commercial property, as well as any other immovable property and parking spaces
• a 'personal service'
• the sale of 'goods', and
• the rental of any mode of transport.

Once the 'seller' falls into the scope of the Directive, some information will have to be communicated to the tax authorities (e.g. the name and identity of the seller, the total consideration paid or credited to the seller).

In addition, the administrative cooperation between EU member states' tax administrations is also strengthened, including by providing a legal basis for 'joint audits'. Furthermore, active participation in tax investigations by foreign tax officials is made possible.

The law of 21 December 2022 (amended by the law of 22 December 2023 aiming to strengthen the oversight and enforcement of the law at the platform operator level) and Royal Decree of 25 December 2023 implement DAC7 into domestic law. Regional decrees were also adopted to that end.

Belgian former reporting obligations 

As a precursor to DAC7, Belgium had already introduced certain reporting obligations for digital platform operators through the Act of 20 December 2020. This preliminary version of the DAC7 obligations was applicable as of 1 January 2021 until 31 March 2023.

The reporting obligations under the Belgian law applied to ‘digital co-operation platforms’ (non-defined term), both Belgian and foreign. The material scope of the Belgian reporting obligations was more limited compared to DAC7 as it was limited to personal services (provided by individuals only, irrespective of whether the services were provided in a professional context or not). Platform operators had to (i) inform their users on their legal (tax and social) obligations and provide these users with an overview of all transactions performed through the platform and (ii) report this information to the Belgian tax authorities. These obligations had to be fulfilled for the last time by 31 March of each year.

Crypto-asset reporting framework, high-net-worth individuals, sanctions policy, and other changes (DAC8)

Council Directive (EU) 2023/2226 of 17 October 2023 (DAC8) again further modifies the DAC to provide for an AEoI regarding new means of payment and investment, such as crypto-assets and e-money. It is expected that such reporting will facilitate tax control of crypto-assets and e-money. The Directive also further strengthened the rules on administrative cooperation, in particular, regarding high-net-worth individuals (exchange of information about cross-border rulings), the use of the information exchanged (for purposes other than tax), exchange of information on non-custodial dividend income, and sanctions policy.

Member states are required to adopt and publish the necessary laws, regulations, and administrative provisions to comply with the Directive by 31 December 2025. These provisions should be applied from 1 January 2026. The Directive also sets additional deadlines for specific articles, with provisions to be adopted by 31 December 2027 and 31 December 2029, and to be applied from 1 January 2028 and 1 January 2030, respectively. The specific implementation and entry into force dates may vary between member states.

Public Country-by-Country Reporting (Public CbCR) 

Directive of 24 November 2021

The Directive (EU) 2021/2101 of 24 November 2021 (the so-called ’Public CbCR‘ Directive) introduced specific European transparency rules and requires certain European and/or non-European multinational groups or standalone undertakings to publicly disclose certain financial data. More in particular, multinational enterprises or stand-alone undertakings with a total consolidated revenue of more than EUR 750 million over the last two consecutive financial years should make certain (tax) information public.

The Directive provides for a combination of aggregation and disaggregation of the information to be made public.

According to the Directive, the information must be disclosed on a disaggregated basis, that is, on a country-by-country basis, for every:

• member state
• jurisdiction that is mentioned on the EU list of non-cooperative jurisdictions (the ’EU Blacklist‘) on the first of March, and
• jurisdiction that is mentioned on the so-called ’EU Greylist‘ (i.e. the state of play document) if the country is on the list for two consecutive years (on the first of March).

Under the Directive, the information related to other jurisdictions may be disclosed on an aggregated basis.

The Public CbCR Directive entered into force on 21 December 2021.

Belgian Public CbCR Law and Royal Decree: Broad Implementation

The Public CbCR Directive has been implemented by Belgium into national legislation via the law of 8 January 2024 and the Royal decree of 18 April 2024.

In addition to member states and jurisdictions included in the EU black and grey lists, the Belgian implementation provides that the information of the report on income tax information should also be disaggregated for the following jurisdictions:

• jurisdictions mentioned on the Belgian list of tax havens of Article 179 RD/BITC92 (list relating to payments to tax havens)
• jurisdictions mentioned on the Belgian list of countries whose ordinary tax provisions are presumed to be significantly more advantageous than in Belgium for the application of the dividend-received deduction regime (Article 73/4quater RD/BITC92), and
• jurisdictions rated by the global forum on transparency and exchange of information for tax purposes as non-compliant or only partially compliant.

The Belgian implementation does not specify the effective dates for the various lists related to Public CbCR. It defines a ’non-cooperative tax jurisdiction‘ as a tax jurisdiction listed in Annexes I and II of the Council conclusions on the revised EU list of non-cooperative countries and territories for tax purposes, updated annually in February and October, deviating from the directive’s specified timings.

The first Public CbCR is foreseen for financial years that start on or after 22 June 2024. The publication should take place within 12 months from the date of the balance sheet of the financial year in question.

ATAD 3

On 22 December 2021, the European Commission released a new important proposal laying down rules to prevent the misuse of shell entities for tax purposes (commonly referred to as ATAD 3 proposal).

The ATAD 3 proposal has as its objectives to (i) identify the so-called shell entities with no minimal substance and economic activity (based on a substance test), (ii) define common tax-related substance requirements for these entities operating within the European Union, and (iii) deny certain tax benefits and impose disclosure requirements and AEoI between EU member states. 

The ATAD 3 proposal stems from the European Commission's Communication on Business Taxation for the 21st Century, in which the European Commission pledged to tackle the abusive use of entities and arrangements that have no or little substance. ATAD 3 would apply to all undertakings that are considered tax resident and are eligible to receive a tax residency certificate in an EU member state, regardless of their legal form (e.g. including SMEs, partnerships that are deemed residents for tax purposes, trusts). Undertakings falling into either of the following categories would not be in scope of the Directive however:

• Companies, the principal class of shares of which is listed on a recognised stock exchange.
• Regulated financial undertakings, which include (among others) banks, alternative investment funds and UCITS, as well as their regulated management companies, pension funds, and insurance companies.
• Undertakings that hold shares in operational businesses located in the same EU member state as the undertaking's beneficial owner(s) (as defined in the Directive).
• Undertakings with holding activities that are resident for tax purposes in the same EU member state as the undertaking’s shareholder(s) or ultimate parent entity.
• Undertakings with at least five full-time employees exclusively carrying out the income generating activities of the undertaking.