In the context of the digitalization (and globalization) of the economy and the consequent increasing need to prevent companies from shifting profits to jurisdictions with low taxation, the EU adopted a Council Directive of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union ("Pillar II Directive"). This Directive, which reflects the global agreement reached at the level of the Organisation for Economic Co-operation and Development ("OECD"), must be transposed into national legislation of the Member States before 31 December 2023.
Belgium has drafted a bill introducing these Pillar II Rules into Belgian tax law (55K3678001.pdf (dekamer.be)), which was submitted to the Belgian Parliament on 13 November 2023. This draft bill will most likely be approved by the end of 2023, with the relevant provisions expected to apply as from 1 January 2024.
Through this law, a minimum effective tax rate of 15% at Belgian level will be introduced on the part of multinational enterprise groups ("MNE groups") and large domestic groups with consolidated annual revenues exceeding EUR 750 million.
Please find below a brief overview of some key considerations in respect of this draft bill (a more in-depth analysis will be included in a future newsletter):
- The Pillar II provisions will be included (as a whole) in a separate bill as their integration in the existing Belgian Income Tax Code 1992 ("ITC92") would increase the latter's complexity and thus also their implementation by the Belgian Tax Authorities;
- To align existing tax laws with the new Pillar II rules, the ITC92 and the Code of the amicable and enforced collection of tax and non-tax debts will be adapted on several points,including some amendments to the R&D tax credit regime so that it qualifies as a "qualified refundable tax credit" under Pillar II rules (resulting in a more favorable treatment that weighs less on the effective tax rate, thus safeguarding the tax benefit of such credit). Additional technical aspects relating to the implemented rules will be covered in future Royal Decrees;
- The draft bill clarifies that the Belgian minimum tax is in line with the OECD Model Rules and that the OECD's Administrative Guidance and Commentaryshould be used as explanatory notesto the bill;
- Taxpayers who have certain issues or questions regarding the application of the rules cannot request a ruling from the Belgian Ruling Commissionin order to obtain legal certainty, but, instead, they can submit their advance questions, in an informal way, to a specific service within the tax administration;
- The minimum tax rate is 15% and is achieved through three different levy mechanisms, being (i) a qualified domestic minimum top-up tax (“QDMTT”), (ii) an income inclusion rule (“IIR”) and (iii) an undertaxed profits rule (“UTPR”). Mechanisms (i) and (ii) apply for tax years starting on or after 31 December 2023, while (iii) enters into force for tax years starting on or after 31 December 2024;
- Transitional safe harbor rules are included in the draft bill, which aim at mitigating the compliance burden on MNE's by excluding certain low-risk entities and jurisdictions from the scope of the detailed calculations under Pillar II;
- The draft bill includes a prepayment systemfor the collection of the QDMTT and the IIR, with the application of surcharges in case of insufficient prepayments;
- In case the draft bill is approved before the end of 2023, this will also have an impact on the Belgian minimum tax rule (the so-called “basket rule”)which currently implies that companies can, per taxable period, deduct carried-forward tax losses up to EUR 1 million plus 40% of the taxable result exceeding EUR 1 million. As of 1 January 2024, the 40% threshold will be increased to 70% again, provided that the draft bill is passed in time;
- Given the complexity of the tax returns that must be filed according to the Pillar II rules, the draft bill explicitly states that the 10-year investigation and assessment period applies.
This draft bill, once it is approved by Parliament and entered into force, will have a far-reaching impact on Belgian companies that are targeted by these rules (in Belgium, we understand that this rule should impact approx. 2,000 groups and 70 ultimate parent entities). Hence, also considering the legal complexity and the fact that several technical aspects still need to be further elaborated, it is recommended to closely follow up on any developments in this regard.
In case of questions, please do not hesitate to reach out to your regular contact within the Fieldfisher Belgium tax team.
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