Spurred on by Europe, the fight against international tax evasion and tax avoidance is being stepped up in Belgium. The new regime not only looks at whether countries have too low a tax burden, it also considers whether or not they are willing to make positive changes to their tax legislation and practices.
Combating fiscal fraud at various levels
The fight against international tax fraud is being conducted at various levels. Globally by the OECD, which was mandated for this task by the G20 ten years ago and also at a European and national level by individual countries. Each level has its own list and criteria to determine what constitutes a tax haven.
OECD list of tax havens
Any country that does not comply with the OECD standard of transparency and exchange of information.
European list of tax havens
Countries that do not cooperate fully in the fight against tax avoidance and tax evasion. Although they do not necessarily have an inadequate tax burden, they do not impose the necessary measures to combat fiscal fraud. They are referred to as non-cooperative countries.
Belgian list of tax havens
There is no unambiguous legal definition available concerning the concept of a 'tax haven'. Belgium has drawn up several lists of countries with jurisdictions that are considered tax havens in certain situations. Belgium also uses different definitions for a number of specific anti-malpractice definitions. For example, definitions of a 'tax haven' can be found in the legislation concerning payments to tax havens, DBI (Definitively Taxed Income) deduction, CFC regulation, irregular benevolent advantages and the 'old' interest deduction limitation.
New law driven by Europe
The Belgian law dated 20 December 2020 transposes a number of European defensive measures into Belgian law in respect of jurisdictions on the European list of non-cooperative countries.
New tax havens
A number of jurisdictions on the European list of non-cooperative countries shall henceforth also be considered tax havens under Belgian law. They specifically include American Samoa, Anguilla, Barbados, Fiji, Guam, Palau, Panama, Samoa, the Seychelles, Trinidad and Tobago, the American Virgin Islands and Vanuatu.
What are the actual consequences of this new anti-fraud legislation?
Extension of the mandatory declaration obligation
The obligation to declare payments to countries that exceed a total of EUR 100,000 per taxable period has been extended to all payments to jurisdictions on the European list.
This declaration obligation applies to payments made as of 1 January 2021.
Stricter CFC regime
The CFC (Controlled Foreign Corporation) regime relates to fiscal legislation that aims to prevent taxpayers from moving to tax havens to avoid paying corporation tax.
Under the current CFC regime undistributed profits of foreign companies are included in the basic taxable amount of the domestic company if the profits arise from an artificial structure with the essential purpose of obtaining fiscal benefits.
Under the new law, undistributed profits from artificial structures will henceforth always be taxed on account of the taxpayer who performs the key functions of these assets or risks. The condition is that this profit is accrued by a foreign company that is based in a jurisdiction which is included in the European list of tax havens, irrespective of whether the participation condition or the taxation condition has been met.
This stricter regime shall apply to taxable periods ending on or after 31 December 2020.
Extension of the Cayman tax
An entity with a legal personality established in one of the countries on the European list shall be deemed to fall within the scope of the Cayman tax.
Cayman tax can be avoided by proving that the legal structure is subject to an income tax rate of at least 15% of its taxable income determined in accordance with Belgian rules. Or by proving that the income of this legal structure is primarily derived from the performance of actual economic activities.
This amendment shall apply to taxable periods ending on or after 31 December 2020.
Stricter DBI deduction regime
DBI (Definitively Taxed Income) deductions shall not be allowed if the income is granted or allocated by a company based in a country where the common law provisions on taxation are significantly more favourable than in Belgium. Inclusion of the jurisdiction in this list can be challenged by providing proof to the contrary.
According to the new law, dividends paid by a resident who is based in a jurisdiction that is included in the European list at the time of payment or allocation of the dividend shall henceforth also be excluded. Challenging this inclusion in the list of non-cooperative countries with proof to the contrary shall not be possible.
This amendment shall apply to dividends that have been granted as from 1 January 2021.
Is this just the beginning?
Three years after its initial publication, the European list of tax havens now has an impact on the national legislation of member states. It is likely, therefore, that the European approach in the fight against tax avoidance and tax evasion will lead to further changes in domestic legal provisions in Belgium. The current adjustment is quite remarkable because it does not merely look at the tax burden in the countries concerned, it actually aims to encourage these countries or jurisdictions to make positive changes to their fiscal legislation and practices through cooperation.
Do you have further questions or would you like more detailed information? Stephanie Seré and An Lettens would be happy to provide further details and more in-depth explanations.