News & Publications

Lydian - Tax Newsletter, April 2012

Submitted By Firm: Lydian

Contact(s): Alexander Vandenbergen, Jan Hofkens

Author(s):

Caroline Kempeneers and Geert De Neef

Date Published: 4/16/2012

Article Type: Legal Update

Share This:

The Belgian Government Di Rupo I has introduced various new tax measures. These tax measures follow an earlier set of tax rules that have been introduced end of December 2011.

After long discussions, the Government and Parliament have now finally agreed on a second set of tax measures, enacted through the Programme Law of March 29th, 2012, which was published in the Belgian Official Gazette on April 6th, 2012 and through a preceding Royal Decree of February 23rd, 2012 which was published in the Belgian Official Gazette on February 28th, 2012. 

BENEFITS IN KIND OF FREE HOUSING, ELECTRICITY AND HEATING

The taxable benefit in kind related to the free disposal of housing facilities enjoyed by a company director has almost doubled.

Indeed, as of January 1st, 2012 the taxable benefit for a non-furnished property with a “deemed rental income” (“kadastraal inkomen” / “revenue cadastral”) exceeding 745 EUR is calculated on the basis of: 100/60 x deemed rental income x 3.8 (instead of “2”, the factor applied before). 

Also the taxable benefit in kind of the free supply of electricity and heating to company directors has increased to 910 EUR for electricity and 1,820 EUR for heating (Royal Decree of February 23rd, 2012).

CAPITAL GAINS ON SHARES REALIZED BY COMPANIES

Until recently, capital gains on shares were fully exempt from corporate income tax, provided that certain conditions are fulfilled. The most essential condition is the “subject to tax condition” as applicable in the dividend deduction rules, meaning that the distributing company has to be a legal entity subject to a normal corporate income tax regime. Other specific rules apply as well and need to be verified on a case-by-case basis (for instance, dividends distributed by offshore companies, as a general rule, do not qualify for the exemption). 

However, the capital gains exemption rules did not provide a minimum detention period for the shares.  As a result, Belgium has been a popular tax haven for international transactions seeking a short term tax free realization of capital gains on shares. 

The new rules on the capital gains exemption on shares still include the same conditions, but provide as a new and additional condition that the shares of the subsidiary must be held by the selling company for an uninterrupted period of at least one year, in order to benefit from the tax exemption. 

In case the one year period is not fulfilled, and provided that the concerned shares in principle do qualify for the exemption, the capital gain will be taxable at a special rate of 25% (to be increased by the “crisis” tax, bringing the effective rate to 25.75%). 

If the “subject to tax condition” is not met, the capital gain will be taxable at the normal Belgian corporate income tax rate (standard rate is 33.99%). 

A special capital gains tax regime is introduced for professional trading companies.

 DEBT-EQUITY RATIO

Belgian tax law already provided for a debt-equity ratio of 7:1 for interest on loans paid to companies incorporated in tax havens or subject to a particularly favorable tax regime.  As a result, the interest related to that part of the loan which exceeded  7  times the debtor’s qualifying equity (= the sum of the retained earnings at the beginning of the taxable period and the paid-up capital at the end of the period), was not tax deductible. 

The new debt-equity ratio has been set at 5:1 and is now also applicable on interest on loans granted by group companies. As a result, interest on intra-group loans exceeding 5 times the equity of the debtor company, will no longer be tax deductible. 

Various exceptions to this new debt-equity ratio will apply (e.g. public bonds, certain types of leasing companies). 

Please note, however, that the new debt-equity ratio has not yet entered into force because of some unresolved issues.  A Royal Decree will determine the effective date, which would be at the latest on July 1st, 2012.

NEW ANTI-ABUSE RULE

Without any doubt the most “notorious” new tax rule, concerns the substantially modified article 344, § 1 of the Income Tax Code or the so-called “anti- abuse” rule. 

The new anti-abuse rule provides that a legal act or series of legal acts is/are not binding upon the tax authorities if the tax authorities can demonstrate that “tax abuse” has been committed. 

Tax abuse is defined as a transaction or a series of transactions, whereby the taxpayer avoids taxes or claims a tax benefit, contrary to the objective of the legal provision introducing the tax avoidance or tax benefit. 

The tax authorities may prove the existence of tax abuse by all legal means (through presumptions or any other acceptable means of evidence, except for the oath) and on the basis of “objective” circumstances. When such “objective” circumstances can be demonstrated by the tax authorities, the burden of proof is shifted to the taxpayer who needs to demonstrate the existence of underlying non-fiscal “subjective” motives for his act(s). 

In the Belgian press, the new provision is referred to as a “bazooka”, as various tax specialists believe that the tax authorities could from now on “attack” almost any transaction or act which is essentially tax driven, even if the taxpayer has respected all tax and legal consequences  and has not simulated any deeds or acts for tax purposes. Many believe that the new provision may even violate the principle of “legality” (i.e. the principle that any taxation should be based on a clear and specific rule of law). 

The Minister of Finance has attempted to bring some peace in this debate by confirming in Parliament that in practice not much would change compared to the existing anti-abuse rules. At the same time, however, the Minister refused to give specific examples of legal acts or deeds that would be threatened by the new anti-abuse rule.  It can therefore not be excluded that the new anti-abuse provision will create - even more than before – legal uncertainty and inevitably cause long and tenacious disputes with the tax authorities. 

Moreover, the same anti-abuse provision is also introduced for registration duties (article 18 of the Registration Duties Code). 

We believe that the most safe tax conduct or behavior from now on will need to be based on serious economic or financial business motives, as any purely tax driven structuring of deals will be more severely targeted by the tax authorities. 

The new anti-abuse  rule applies as of tax year 2013 (i.e. income year 2012 for individuals and corporations with an accounting year equal to the calendar year) as well as to any legal acts carried out during tax year 2012 provided that the accounting year closes as from the 6th of April 2012 on.

For the registration duties, the new anti-abuse rule will apply to all legal acts or series of legal acts carried out as of June 1st, 2012.As in many other countries, the Belgian budget is under pressure and the Government is in desperate need of additional funding. Resultantly, one may expect that the Belgian Government will be obliged to take even further action in the course of the coming year(s).

OTHER TAX NEWS: COMPETENCE TO TAX

Fiscal residency

Recent jurisprudence reconfirms the importance of the correct interpretation and of the substance requirements for the “permanent home” condition. 

For several years already, the Belgian tax authorities are reviewing the tax situation of “artificial” set-ups of “frontier workers” schemes. Also recently, the Court of First Instance of Arlon ruled that a person could not qualify as having his “permanent home” in the French frontier zone, since all relevant elements of his personal situation were not consistent and indicated that the person concerned had always kept his “centre of vital interests” in Belgium and therefore could not benefit from the frontier worker status. 

The case before the Court of Arlon clearly shows that for proving the actual tax residence or “permanent home”,  it is not only  important to demonstrate that various  administrative formalities are complied with , but also that the effective “ centre of vital interests”, considering both the personal as well as the professional situation, indeed is located in Belgium.  The Court stated that all factual elements should be consistent, e.g. phone bills, electricity bills, bills for buying gas or food supplies, etc. 

The latter jurisprudence does not only relate to the actual frontier worker status, but is equally relevant for other residency status disputes, certainly in view of the latest wealth tax announcements in France. Migrating to Belgium- to escape French income and wealth taxes - therefore needs to result in the actual transfer of the “centre of vital interests” to Belgium. Often the most difficult obstacle to deal with in order to realize an effective migration to Belgium is the sale or disposal of the family home in France. 

Work State

As for the tax residency analysis, the Belgian tax authorities also increasingly submit the criteria for determining the “work state” (article 15 of the OECD Model Convention) to an actual “substance” test, whereby they dedicate more importance to the factual elements of the taxpayer’s specific working situation. 

As a general rule, employees are taxable in the state where they exercise their employment.

If an employee works both in Belgium and in another state – provided that state signed a Double Tax Treaty with Belgium-, the employee is taxable in both states in accordance with his work performed in each state, as such creating a salary split. In some cases, by applying the so-called 183 days-rule, his income may be attributed solely to his “residence state” provided a.o. that the employee’s working days in the other state do not exceed 183 days per year. 

In a recent case before the Court of Appeal in Brussels, a Belgian resident claimed such salary split, as he worked partially for a Belgian company – in Belgium – and partially for a Luxembourg company – in Luxembourg. 

The Belgian tax authorities – followed by the Court of Appeal of Brussels – disagreed that part of the taxpayer’s salary was subject to Luxembourg taxation (and exempted in Belgium) since the employee could not sufficiently prove his actual presence and the actual exercise of his employment in Luxembourg. 

This case law demonstrates that it is essential – both for Belgian employees working abroad, as for foreign employees working in Belgium – to demonstrate and collect specific elements of proof regarding  their employment outside their residence state, e.g. by travel tickets, restaurant bills, gas tickets, rental payments for hotels, apartments, other types of spending, … 

The latter jurisprudence confirms once more that it does not suffice to dispose only of an employment contract with a foreign company to be able to benefit from a salary split. 

Find an Employment Lawyer

In all 50 U.S. states, every Canadian province, and over 135 countries. View or print a complete ELA member list by clicking here.

Find an Immigration Lawyer

Facilitate employee transfers around the globe. View or print a complete ELA member list by clicking here.

Global Business Immigration Law Handbook

Your free resource for obtaining key business immigration law information worldwide.

Client Successes

Altra Industrial Motion Inc.

Altra Industrial Motion Inc. has multiple locations in the U.S., as well as Central America, Europe, and Asia. The Employment Law Alliance has proved to be a great asset in assisting us in dealing with employment issues and matters in such diverse venues as Mexico, Australia, and Spain. We have obtained excellent results using the ELA network for matters ranging from a multi-state review of employment policies to assisting with individual employment issues in a variety of foreign jurisdictions.

In one instance, we were faced with an employment dispute with a former associate in Mexico that had the potential for substantial economic exposure. The matter had been pending for over a year, and we were not confident in the employment advice we had been receiving. I obtained a referral to the ELA counsel in Mexico, who was able to obtain a favorable resolution of the dispute in only a few days. Based on our experiences with the ELA, we would not hesitate to use its many resources for future employment law needs.

American University in Bulgaria

In my career I have been a practicing attorney, counsel to the Governor of Maine, and CEO of a major public utility. I have worked with many lawyers in many settings. When the American University in Bulgaria needed help with employment litigation in federal court in Syracuse, New York, we turned to Pierce Atwood, the ELA member we knew and trusted in Maine, for a referral. We were extremely pleased with the responsiveness and high quality of service we received from Bond Schoeneck & King, the ELA's firm in upstate New York. I would not hesitate to recommend the ELA to any employer.

David T. Flanagan
Member of Board of Trustees 

Arcata Associates

I really enjoyed the Conducting an Effective Internal Investigation in the United States webinar.  We are in the midst of a rather delicate employee relations issue in California right now and the discussion helped me tremendously.  It also reinforced things that you tend to forget if you don't do these investigations frequently.  So, many, many thanks to the Employment Law Alliance for putting that webinar together.  It was extremely beneficial.

Lynn Clayton
Vice President, Human Resources

Barrett Business Services, Inc.

I recently participated in the ELA-sponsored webinar on the Employee Free Choice Act.  I was most impressed with that presentation.  It was extremely helpful and very worthwhile.  I have also been utilizing the ELA's online Global Employer Handbook.  This compliance tool is absolutely terrific. 

I am familiar with several other products that purport to provide up-to- date employment law information and I believe that this resource is superior to other similar compliance manuals.  I am delighted that the ELA provides this free to its members' clients.

Boyd Coffee Company

Employment Law Alliance (ELA) has provided Boyd Coffee Company with a highly valued connection to resources, important information and learning. With complex operations and employees working in approximately 20 states, we are continually striving to keep abreast of specific state laws, many of which vary from state to state. We have participated in the ELA web seminars and have found the content very useful. We appreciate the ease, cost effectiveness and quality of the content and presenters offered by these web seminars.  The Global Employer Handbook has provided our company with a very helpful overview of legal issues in the various states in which we operate, and the network of attorneys has helped us manage issues that have arisen in states other than where our Roastery and corporate headquarters are located in Portland, Oregon.

Capgemini Outsourcing Services GmbH

As an international operating outsourcing and consulting supplier Capgemini has used firms of the Employment Law Alliance in Central Europe. We were always highly satisfied with the quality of employment law advice and the responsiveness. I can really recommend the ELA lawyers.

Hirschfeld Kraemer

As an employment lawyer based in San Francisco, I work closely with high tech clients with operations around the globe. Last year, one of my clients needed to implement a workforce reduction in a dozen countries simultaneously. And they gave me 48 hours to accomplish this. I don't know how I could have pulled this off without the resources of the ELA. I don't know of any single law firm that could have made this happen. My client received all of the help they needed in a timely fashion and on a cost effective basis.

Stephen J. Hirschfeld
Partner 

Hollywood Entertainment Corporation

As the Vice President for Litigation & Associate General Counsel for my company, I need to ensure that we have a team of top-notch employment lawyers in place in every jurisdiction where we do business. And I want to be confident that those lawyers know our business so they don't have to reinvent the wheel when a new legal matter arises. With more than 3400 stores and 35,000 employees operating in all 50 U.S. states and across Canada, we rely on the ELA to partner with us to help accomplish our objectives. I have been delighted with the consistent high quality of the work performed by ELA lawyers. I encourage other in-house counsel to use their services, as well.

Ingram Micro

Ingram Micro is the world's largest technology distributor, providing sales, marketing, and logistics services for the IT industry around the globe. With over 13,000 employees working throughout the U.S. and in 35 international countries, we need employment lawyers who we can count on to ensure global legal compliance. Our experience with many multi-state and multi-national law firms is that their employment law services are not always a high priority for them, and many do not have experts in many of their offices. The ELA has assembled an excellent team of highly skilled employment lawyers, wherever and whenever I need them, and they have proven to be an invaluable resource to our company.

Konami Gaming

Our company, Konami Gaming, Inc., is growing rapidly in a very diverse and highly regulated industry. We are aggressively entering new markets outside the domestic U.S., including Canada and South America. I have had the recent opportunity to utilize the services provided by the ELA. The legal advice was both responsive and professional. Most of all, the entire process was seamless since our Nevada attorney coordinated the services and legal advice requested. I look forward to working with the ELA in the future, as it serves as a great resource to the legal community.

Jennifer Martinez
Vice President, Human Resources

Nikkiso Cryo, Inc.

Until recently, I was unaware of the ELA's existence. We have subsidiaries and affiliates throughout the United States, as well as in Asia, the Middle East and Europe. When a recent legal issue arose in Texas, our long-time Nevada counsel, who is a member of the ELA, suggested that this matter be handled by his ELA colleague in Dallas. We are very pleased with the quality and timeliness of services provided by that firm, and we are excited to now have the ELA as an important asset to help us address employment law issues worldwide.

Palm, Inc.

The ELA network has been immensely important to our company in helping us address an array of human resources challenges around the world. I strongly encourage H.R. executives who have employees located in many different jurisdictions to utilize the ELA's unparalleled expertise and geographic coverage.

Stacy Murphy
Former Senior Director of Human Resources

Rich Products

As the General Counsel for a company with 6,500 employees operating across the U.S. and in eight countries, it is critical that I have top quality lawyers on the ground where we do business. The ELA is an indispensable resource. It has taken the guesswork out of finding the best employment counsel wherever we have a problem.

Jill K. Bond
Senior Vice President/General Counsel, Shared Services and Benefits

Ricoh Americas Corporation

We have direct sales and service offices all over the U.S., but have not necessarily had the need in the past for assistance with legal work in every state where we have a business presence. From time to time, we suddenly find ourselves facing a legal issue in a state where we have no outside counsel relationship. It has been a real benefit to know that the ELA has assembled such an impressive team of experts throughout the U.S. and overseas.

A few years ago, we faced a very tough discrimination lawsuit in Mississippi. We had never had to retain a lawyer there before. I was absolutely delighted with the Mississippi ELA firm. We received an excellent result. They will no doubt handle all of our employment law matters in Mississippi in the future. I have also obtained the assistance of several other ELA firms around the U.S. and have received the same outstanding service. The ELA is a tremendous resource for our company.

Roberts-Gordon LLC

Our affiliated companies have used the Employment Law Alliance in connection with numerous acquisitions, and have always been extremely pleased with our ability to obtain the highest quality legal advice on due diligence issues from jurisdiction to jurisdiction. We have found the Employment Law Alliance firms to be not only first rate with respect to their legal advice but also responsive and timely in assisting us with federal and state law issues critical to our due diligence efforts. We consider the Employment Law Alliance to be an important part of our team.

Rockwell Collins, Inc.

We have partnered with many ELA firms on the development and execution of case management strategies with very positive results. We have been very pleased with the legal advice and counsel provided by the law firms we have utilized who are affiliated with the Employment Law Alliance. The ELA firms we have worked with are customer focused, responsive, and thorough in their approach to handling labor and employment law matters.

Elizabeth Daly
Assistant General Counsel

Sanmina-SCI

Sanmina-SCI has facilities strategically located in key regions throughout the world. Our customers expect that we will provide them with the highest quality and most sophisticated services in the marketplace. We have that same expectation for the lawyers with whom we do business. With operations in 17 countries, we need to be certain that we have a team of lawyers working together to address our employment law needs worldwide. The ELA has delivered exactly what it promised-- seamless and consistent high quality services delivered in each locale around the globe. It has quickly become a key asset for our human resources department.

Starwood

We own, manage, and franchise hotels throughout the U.S. and in more than 90 countries. With more than 145,000 employees worldwide, ensuring that we comply with the complex web of local labor and employment laws in every one of these jurisdictions is a daunting task. The Employment Law Alliance has served as an important resource for us and we have benefited greatly from its expertise and long reach. When a legal dispute or issue has arisen in some far-flung place, Employment Law Alliance lawyers have always provided responsive, practical, and cost-effective assistance.

Wilmington Trust Corporation

Wilmington Trust has used the ELA to locate firms in California, Washington State, Georgia, and Europe. Our experience with the ELA lawyers with whom we have worked has always been one of complete satisfaction and prompt, practical advice.

Michael A. DiGregorio
General Counsel  

Loading...