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The Program Law of 23 December 2023 (published on 29 December 2023 in the Belgian Official Gazette – the "Law") amended articles 54 and 344, §2, of the Belgian Income Tax Code 1992 (the "ITC").
These changes are described below.
Background
Articles 54 and 344, §2 of the ITC respectively presume certain payments and asset transfers as (i) non-tax deductible and (ii) not enforceable against Belgian tax authorities when made to jurisdictions considered as tax havens.
Targeted payments and asset transfers (the "Transactions") include:
- interests and compensatory indemnities paid in relation to these, royalties or considerations for services or provisions (article 54 of the ITC); and
- the sale, transfer, or contribution of shares, bonds, receivables, or other debt instruments, copyrights, patents, manufacturing processes, trademarks, or any other analogous rights or sums of money (article 344, §2, of the ITC).
Jurisdictions considered as tax havens are those where the beneficiaries of the Transactions are either (i) not subject to income tax or (ii) subject to a significantly more favorable tax regime.
Prior to the Law, Transactions to tax havens could still be tax deductible/enforceable by proving that they:
- corresponded to real and sincere transactions, without exceeding normal limits (article 54 of the ITC); or
- were justified by legitimate financial or economic needs or had triggered a genuine consideration generating income effectively subject to normal taxation in Belgium (article 344, §2, of the ITC).
European violation
By its decision of 5 July 2012 in the SIAT case (C-318/10), the Court of Justice of the European Union ("CJEU") criticized article 54 of the ITC on the grounds that it was too vague and lacked objective criteria, resulting in legal uncertainty, especially in determining jurisdictions to be considered as tax havens.
For this reason, article 54 of the ITC has no longer been applied to intra-European Transactions (although it continued to apply to Transactions with third countries).
In our view, the CJEU's criticisms (which strictly concerned article 54 of the ITC) should also be entirely transposed to article 344, §2, of the ITC given their similar wording.
Amendment of articles 54 and 344, §2, of the ITC
To follow the SIAT case law, the Law amended articles 54 and 344, §2, of the ITC as follows:
- these articles now only apply if the Belgian taxpayer carrying out the Transactions and their beneficiary are interdependent (appreciated on a broad basis, e.g. the link can be economic, managerial, or structural);
- these articles' presumptions (i.e. non-tax deductibility/enforceability) remain identical, but won't apply if the beneficiary of the Transactions is subject to an effective income tax of at least half of the tax that would have been due on the income if it had been established in Belgium; and
- such presumptions won't apply either if the Belgian taxpayer carrying out the Transactions proves that they are part of a genuine transaction, i.e. set up for valid business reasons and reflecting real economic activity.
These changes came into force for Transactions carried out as of 1 January 2024.
A drop in the bucket
Although they seem to simplify and clean up the wording, we believe that the above-mentioned amendments fail to address the main issue raised in the SIAT case.
Excluding the non-tax deductibility/enforceability only for beneficiaries subject to a minimal level of taxation represents a false solution, which does not resolve the lack of legal certainty while even complicating the burden of proof for Belgian taxpayers.
The right amendment would have been to set up an exhaustive list of jurisdictions considered as tax havens, the absence of which continues to (purposely) leave Belgian tax authorities free to widely interpret articles 54 and 344, §2, of the ITC (contrary to the CJEU's requirement of predictability).
As the Law is already in force, the floor on this subject is now left to the Belgian Courts.
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In case of questions, please do not hesitate to reach out to your regular contact within the Fieldfisher Belgium tax team.