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 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 of certain non-financial entities qualifying as 'passive' (or passive NFEs), which are controlled directly or indirectly by private individuals who are reportable persons. Financial institutions also have registration obligations under 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.
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. DAC3 was also implemented at regional level.
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 Belgian tax administration has adopted a circular in the form of a FAQ (Frequently Asked Questions) regarding BEPS action 13 (Circulaire 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
The Act of 18 September 2017 provides for 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, (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. If no UBO can be appointed, senior management of that entity will be considered to be the UBOs.
In addition to the initial registration of the UBO’s , every change must be updated within the month and, moreover, the accuracy of the information must be confirmed annually.
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. 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.
Please also note that the Belgian tax authorities will communicate any information contained in the UBO register in the case of a request from a foreign tax administration.
- 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 Federal Public Service Finance has announced that the current deadline (i.e. 30 April 2021) for uploading supporting documents and annual confirmation of the information in the UBO Register will be extended to 31 August 2021. Furthermore, a new version of the frequently asked questions (FAQ), updated as per 31 March 2021, has been published.
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 on cross-border arrangements by tax advisers (DAC6)
On 25 May 2018, the Council adopted the (EU) Directive 2018/822 (so-called DAC6), which aims at strengthening tax transparency and deter 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 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 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 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 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 professional secrecy (such as a lawyer or a registered tax consultant) 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 secrecy rules. 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 infringement may be applied by the tax authorities (see Royal Decree of 20 May 2020). The intentional character (or not) of the breach will be considered.
According to the law, the reportable cross-border arrangements whose first implementation step occured between 25 June 2018 and 1 July 2020 (interim period) were to be reported 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 the original reporting deadlines were postponed regarding the first reporting on the interim period as well as on the period starting from 1 July 2020.
In Belgium, the normal reporting deadline of 30-day 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 (DAC 7)
On 22 March 2021, an update of the Directive on Administrative Cooperation, called DAC7, was approved by the European Council.
One of the building-blocks of DAC7 is the automatic exchange of information. Specifically for digital platform operators (both EU and non-EU platforms), the DAC7 will introduce 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 Relevant Activity”.
It should be noted that DAC 7 aims to cover both private individuals and companies 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 the activity covers 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”;
- 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 (a.o. the name and identity of the Seller, the total Consideration paid or credited to the Seller).
The DAC7 provisions regarding reporting obligations for platform operators must be implemented by 31 December 2022 (application from 1 January 2023). However, it seems that countries do not wait until this deadline to introduce similar obligations.
New Belgian reporting obligations
As a precursor to DAC7, Belgium has already introduced certain reporting obligations for digital platform operators through the Act of 20 December 2020. This preliminary version of the DAC7 obligations is applicable as of 1 January 2021 and will be replaced by the transposition of the final version of DAC7 into Belgian legislation.
The reporting obligations under the Belgian law apply to ‘digital co-operation platforms’ (non-defined term). The law clarifies however that the obligations apply to both Belgian and foreign platforms. We note that the material scope of the Belgian reporting obligations is more limited compared to DAC7 as it is limited to personal services (provided by individuals only, irrespective whether the services are provided in a professional context or not). Under Belgian law, platform operators must (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 must be fulfilled by 31 March of each year.
Thus, even if Belgium has not yet implemented DAC7 into its domestic legislation, similar reporting obligations are applicable as from 1 January 2021. Platforms that fall within the scope of application will have to comply with the Belgian law by 31 March 2022 at the latest to avoid administrative penalties.
E-money and crypto assets (DAC8)
The European Commission is currently working on a new amendment of the Directive on Administrative Cooperation (DAC8) to provide for an exchange of information regarding new means of payment and investment, such as crypto-assets and e-money. In particular, the European Commission expects that such reporting will facilitate tax control of crypto-assets and e-money. The European Commission also wants to strengthen the rules on administrative cooperation.
The official adoption is foreseen in 2021.
On 22 December 2021 the European Commission released a new important proposal with respect to shell entities (commonly referred to as ATAD 3).
ATAD 3 concerns a proposal for a Directive in the field of direct taxation and has as its objective to a) identify the so-called shell entities with no minimal substance and economic activity and b) define common tax related substance requirements for these entities operating within the EU. According to the EC, these entities continue to pose a risk of being used for improper tax purposes, such as tax evasion and avoidance. ATAD 3 stems from the ECs Communication on Business Taxation for the 21st Century where the EC pledged to tackle the abusive use of entities and arrangements that have no or little substance. ATAD 3 attempts to address this by denying certain tax benefits and imposing disclosure requirements and automatic exchange of information between Member States. It follows the earlier adopted ATAD 1 and ATAD 2 to further counter tax avoidance in the EU.
In brief, ATAD 3 lays down a “Substance Test” to identify undertakings which do not have minimum substance and are misused for the purposes of obtaining tax advantages (“shell entities”). In addition, it attaches concrete tax consequences to these shell entities and provides for an amendment of the Directive on automatic exchange of information (the so-called “DAC”).
ATAD 3 would apply to all undertakings that are considered tax resident and are eligible to receive a tax residency certificate in a Member State, regardless of their legal form (e.g., including SMEs, partnerships that are deemed residents for tax purposes, trusts). Undertakings that meet one of the following criteria, will not be in scope of the Directive:
- The principal class of shares of the company is listed on a recognized 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 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 Member State as the undertaking’s shareholder(s) or ultimate parent entity.
- There are at least five full-time employees exclusively carrying out the income generating activities of the undertaking.