• New tax measures in a Program act

New tax measures in a Programme act

Cindy De Bock, Senior Advisor |

06 July 2016

The government has elaborated various tax measures in a Program act. The aim is to regulate the sharing economy, but also to reinforce regulations on the establishment and recovery of taxes. Furthermore, Belgium also wants to meet its legal obligations under the BEPS Action Plan with regard to transfer pricing documentation requirements.

We resume the tax measures alreay announced in our news alert of 13 June 2016.

Sharing economy gets legal framework

Sharing economy (also known as ‘shareconomy’ or ‘collaborative consumption’ or ‘peer economy’) is a hybrid market model which refers to peer-to-peer-based sharing of access to goods and services. E.g. the local gardener who is looking for an extra income and for a small fee providing services to individuals, or the lending of cars or bicycles ... outside a professional context. An (electronic) platform brings these people together.

The government is now regulating the sharing economy, intending to withdraw those activities from moonlighting, but is also providing a clearly defined framework with a minimum of administrative formalities to encourage this new form of economy. 

Limited administrative burden

Individuals that generate income from activities that fit in the sharing economy will not be subject to the social security status of self-employed and do not have to register with the Crossroads Bank for Enterprises (CBE).

For VAT these persons are deemed to apply the special VAT scheme for small enterprises. VAT registration is not required, but this also implies that they do not have a right to deduct VAT on incoming transactions. Furthermore, they are not obliged to submit annual client listings. 

Impact on personal income tax

In personal income tax, revenue deriving from the sharing economy qualifies as miscellaneous income and will be subject to a separate tax of 20%, after deducting a fixed expense allowance of 50%. This therefore comes down to an actual 10% tax burden. 

Conditions

The new regulations are subject to certain conditions:

  • the gross income (or the realised turnover in VAT terms) generated out of activities arising from the sharing economy shall, on a calendar basis, not exceed EUR 5,000;
  • the regulation concerns the rendering of services (not the supply goods) to private individuals;
  • these services are offered through an electronic platform which is recognised by the government.

Effective date

The new provisions apply to income paid or granted as from 1 July 2016. 
 

Establishment and recovery of income tax

Stricter regulation of financial transactions with tax havens

The government wants to take measures to increase the effectiveness of existing rules. Hereto, the obligation to declare payments made by Belgian companies and Belgian establishments of foreign companies of more than EUR 100,000 to tax havens (untaxed or low taxed jurisdictions) is expanded. Not only payments to an individual or legal entity in such countries ar targeted, but also payments to permanent establishments of non-residents in these jurisdictions , as well as payments to bank accounts owned or managed by a resident / permanent establishment of non-residents of these jurisdictions and payments to bank accounts that are managed or held by credit institutions established or having a permanent establishment in those jurisdictions.

In addition, the list of 'untaxed or low taxed jurisdictions' is expanded to countries which do not levy income tax on income of domestic origin or jurisdictions with a territorial tax system which do not levy income tax on income of foreign origin ('offshore income').

The notion 'low taxed jurisdictions' is also tightened: jurisdictions will now also be included in the existing blacklist if the corporate tax rate corresponding to the actual tax burden on income of foreign origin is less than 15%. Therefore, not only the nominal tax rate will necessarily be taken into account, ie. the rate effectively applied to the taxable income in the calculation of the corporate income tax (for which the limit is currently 10%). It will henceforth be possible to take the composition of the taxable base or taxable result into account if, according to international standards, the taxable base is composed abnormally and hence does not reflect the nominal rate correctly.

The declaration requirement also applies when the targeted jurisdiction qualifies as an untaxed or low tax jurisdiction for only part of the assessment year. 

Assessment and investigation term in income tax

Currently there is a 24 month assessment term if it appears from foreign information exchange that taxable income was not declared in Belgium. A lot of information is, however, generated from automatic exchange systems without preceding investigation. With this Program act, the 12 month assessment term will also become an investigation term, allowing the Belgian tax authorities to perform additional investigations, even if the regular 3 year investigation term has expired.

The scope of foreign exchange of information is also further extended. Beside information based on a tax inspection or an investigation by a competent authority of another country, it also includes all information received from abroad, such as spontaneous, mandatory, automatic and structured international exchanges. The 5 year assessment period will be increased to seven years in the case of fraudulent intent or intent to harm.

Administrative penalty for not reporting legal arrangements

Shore Founders or third party beneficiaries of an offshore legal structure which fail to mention the offshore legal structure in their personal income tax return risk an administrative fine of EUR 6,250 per year and per unregistered offshore legal structure . This does not affect the ability of the tax authorities to also impose a tax increase on undeclared income from such a structure .

The administrative sanction shall take effect on the day of publication of the program law in the Belgian Official Journal (i.e. 4 July 2016). 

Belgium adopts transfer pricing documentation requirements

As many other countries Belgium has adopted regulations to implement BEPS Action 13 into Belgian law.

This Program act introduces detailed documentation requirements which will require mulitnationals to provide transparent information that allows transfer pricing risk analyses. Hereto Belgium is implementing the three tiered approach prescribed by the OECD: a country-by-country report, a Master fila and a local file. 

Country-by-country report (CbCr)

The CbCr is a document containing information on the global allocation of income, the taxes paid in countries where the company group is established, a brief description of the professional activities of each of the group companies and other relevant economic indications.

Targeted companies are groups with a consolidated gross turnover exceeding EUR 750 million who have to file the CbCr with the Belgian tax authorities within 12 months after the closing of the consolidated financial statements of the group. 

Master file and Local file

Belgium has also introduced the obligation to submit a 'Master file' and a 'Local file' for each Belgian company or permanent establishment (of a multinational group) that satisfies one of the following thresholds (to be assessed on the basis of the stand-alone financial statements of the Belgian entity - company or permanent establishment - concerned for the preceding financial year):

  • combined operating and financial income of 50 million EUR
  • a total balance sheet of 1 billion EUR
  • annual average number of 100 FTE
     

Masterfile

The Master file provides tax administrations with high-level information on the global business operations and transfer pricing policies of a multinational enterprise (MNE).

The Master file will have to be filed with the Belgian tax authorities within a period of 12 months after the closing of the reporting period of the group. The filing format practicalities will be described in a to-be-issued Royal Decree. 

Local file

The Local file provides a local tax administration with information on material related-party transactions, the amounts involved and the company’s analysis of the transfer pricing determinations made on those transactions.

It will have to be provided in a format consisting of two parts:

  • general part which contains some general information that needs to be completed and filed by all companies or permanent establishments satisfying one of the three thresholds listed above;
  • a more detailed part which should only be completed and filed by companies or permanent establishments that have cross-border intragroup transactions exceeding in total a value of EUR 1 million. If the company or permanent establishment includes more than one business unit, the second part of the form will have to be completed and filed per business unit.

The Local file is to be filed electronically, together with the Belgian income tax return.

Reports may be drafted in English. In case of an audit, however, a translation of the reports in one of the official languages may be requested. 

Penalties

Targeted companies and permanent establishments that fail to satisfy the reporting and filing requirements risk an administrative fine, ranging from 1,250 EUR to 25,000 EUR. 

Effective date

The reporting requirements will take effect for fiscal years beginning on or after 1 January 2016.