Over the last five years, the Ruling Committee has built up a track record for delivering speedy advance rulings on all sorts of tax issues. More importantly, it grants rulings that offer legal certainty to taxpayers and investors.
When the appointment of three board members of the Ruling Committee had to be confirmed by the government in October, the socialist party blocked the decision. They questioned whether that was a decision for a caretaker government to make. Further, they had become weary of this independent department within the Ministry of Finance that they suspected of granting tax favors that lean towards organized tax evasion.
Other departments within the Ministry of Finance also feel the Ruling Committee gives away tax concessions to taxpayers who would not normally be entitled to them. The Special Tax Inspection (in charge of combating large organized fraud) felt that companies apply for a ruling specifically to block their investigations. In particular, it fears abuses with the notional interest deduction.
Last month, the government reappointed the college members but at the same time a protocol was signed between the committee and the Central Tax Administration. This protocol must strengthen cooperation and ensure a better communication between the both.
From now on, the Ruling Committee will check its rulings with the Central Tax Administration before granting them. An advance tax ruling is binding on the other tax departments for the duration mentioned in the ruling, in general five years.
However, the effect of the ruling stops if the law changes subsequently. The protocol, therefore, emphasizes that the Central Tax Administration has the right to make recommendations to the Minister of Finance for a change in the law if a ruling has too big a budgetary impact.
Finance Minister Reynders – and Mr Pierre Wunsch in this month’s AmCham Connect – denies that this new procedure will jeopardize the independence of the Ruling Committee; we will look at the practical consequences in more detail in next month’s AmCham Connect.
After months of uncertainty regarding the body’s future, Belgium has reappointed the members of its Ruling Committee (the authority for advance rulings) subject to a protocol strengthening cooperation between the committee and the Central Tax Administration
Because members of the College of Directors are appointed for five years, they had to be reappointed in 2010. One of the members who was not reappointed challenged the appointment of the three Dutch speaking members of the college for lack of reasoned motivation; the Council of State canceled the appointment.
Within the government, the Socialist Party blocked the reappointment. It questioned whether a caretaker government can make that decision, but, more importantly, it objected to some of the rulings that grant tax favors that lean toward organized tax evasion.
At the same time, the Ruling Committee reportedly clashed with the Special Tax Inspection, a unit that combats large organized tax fraud irrespective of the tax involved. Its inspectors believe companies obtain a ruling to stop the Special Tax Inspection from investigating them. In particular, they fear abuses of the risk capital deduction (also called the notional interest deduction). (read the full article).
2010 was another election year in Belgium. After three years of discussion and stalemates, Prime Minister Yves Leterme was unable to push through the state reform he had promised. His government fell again, and new elections were held June 13. The big winners were the Flemish pro-separatism party N-VA and the Walloon Socialist Party. Negotiations on the next government’s policy keep delaying the major state reform that is expected. Both language groups find themselves in a standoff, with no prospect of a solution soon. If a decision is reached on state reform, chances are it will include giving the regions power to levy the personal income tax or the company income tax.
In the meantime, there have been few legislative changes proposed by Leterme’s caretaker government (read the full article).
The Belgian tax authorities on October 26 published a practice note (Ci.R9. Div. 607/317) clarifying the tax regime for employees working aboard dredgers.
The tax authorities note that in principle, dredging projects fall under articles 5 and 7 of Belgium’s tax treaties. This means their profits are taxable in the country where the enterprise is set up unless it has a permanent establishment in the country where it works. Only Belgium’s double tax agreements with Hong Kong and Macao1 list dredging projects as examples of projects that constitute a permanent establishment. (read the full article).
The elections are already five months behind us and yet there is no sign of a new government before year end. Before a new government can be formed, the winners of the elections – the Flemish nationalist N-VA and the socialist PS in Wallonia – must agree on a solution to the financial/budgetary problems, realize institutional reform and strengthen the socio-economic environment.
If – or when – a decision is reached on state reform, chances are that either personal or corporate income tax will be transferred to the regions. The latter is a sensitive issue, but would be of significant interest to AmCham Belgium members. The Legal and Taxation Committee was briefed on this issue by one of the specialists in the field, Professor Sylvain Plasschaert.
According to Professor Plasschaert, transferring corporate income tax to the regions has been on the Flemish agenda for over a decade. One of the ideas behind it is to give the regions the responsibility for collecting the revenue they are spending, as opposed to relying on grants or ‘donations’ from the federal government. It would also give the regions the means to develop their own economic policies and allow incentives to shift from subsidies towards tax reductions. On the other hand, politicians in the Walloon Region fear this will lead to fierce competition between the regions, with Brussels charming multinational headquarters with drastically reduced tax rates.
The following is a personal summary of the status quaestionis of where we are in the regionalization of the Belgian income tax.
The transfer of the company income tax to the regions has been on the Flemish agenda for over a decade. One of the ideas behind it is to give the regions the responsibility for collecting the revenue that they are spending instead of relying on grants or ‘dotations’ from the federal government. It could also give the regions the means to develop the economic policies for which they have the responsibility and it would allow a general slide in incentives from subsidies to tax reductions. On the other hand, politicians in the Walloon region fear that this will be the start of a fierce competition between regions, with Brussels charming the headquarters of the multinational companies with cut down company tax rates.
At the request of the Flemish government, Prof. Axel Haelterman has worked out a set of proposal for the regionalization of the company income tax in 2007. He favors credits against company income tax rather than deductions from taxable profits. He recommends taxing a company in the region where it is actually established rather than where it has its registered office (since that would unduly favor Brussels). For the companies that operate in more than one region, taxes could be apportioned in accordance with a formula taking into account on the one hand the cost of wages and on the other the cadastral value of real property and the value of fixed assets.
These proposals have the merit of being relatively simple to put in place, but they leave a number of questions unanswered. One of them is whether companies would have to reinvest the saving in (regionalized) company income in their own region. That would be recommended, but would fall foul of the European rules.
Being faced with three company income tax rates instead of one should not daunt multinational companies planning to invest in Belgium. In Switzerland, they have the choice between 26 tax rates. Moreover, for most multinational companies, the company tax rate is not the major deal breaker.
During the negotiations, attention has shifted from a regionalization of company income tax to a regionalization of personal income tax, and all parties seem to have accepted that principle to some degree. The major issue there is how Brussels will not lose out if everyone pays income tax in his region. Many people come to work in Brussels but live in Flanders or Wallonia and pay tax there. Brussels would be left with the scraps of the income tax paid by a population with a high degree of unemployment.
Royal Mediator Vande Lanotte appears to have put a new spin on the idea of the regionalization of the personal income tax. In his draft compromise text of November 24, he does indeed abandon the transfers from the federal to the regional governments (‘dotations’) calculated on the revenue from the personal income tax per region. Instead he proposes ad personal income tax with a split rate. A taxpayer who pays 50 % tax would pay e.g. 25 % to the federal government and 25 % to the region.
There is something in these proposals for everyone. N-VA should like the idea that the regions get a certain degree of responsibility for levying the personal income tax and that the employment market will also be regionalized, in part. The regions will have all interest in creating jobs because that gives more revenue in personal income tax. At the same time, the PS should be reassured that the progressive rates and the level of the income tax[MQ1] stay at the federal level where they can resist any moves to change these. And finally, Brussels will receive 25 to 30 percent of the income tax collected from commuters.
There may even be some room to let the regions give a limited tax credit for the company income tax, but that would be limited to a couple of percent points. That will not put a dent in the Belgian income tax rate that is, with 34 %, one of the higher in Europe.
Vande Lanotte may have the set the lines for plan A, it is too early days to say what the end result will be. If he cannot get to plan A, we have little left but B or rather plan E with the E of Elections.