Belgium has new tax legislation for companies that form a fiscal unit under the same umbrella. This group contribution rule is optional, and is subject to strict conditions. But what if there is tax consolidation with a non-EEA parent company? The non-discrimination rule can provide a solution here.
From fiscal years beginning on 1 January 2019, Belgium (finally) has a tax legislation for creating fiscal unities for corporate income tax purposes. This arrangement of tax consolidation is known as group contribution arrangement, and is completely optional.
This change in the law is far-reaching by Belgian standards, and was introduced to make the tax system in Belgium more attractive. This kind of system of fiscal consolidation has existed in neighbouring countries for many years.
Fiscal unity application conditions
The following conditions must be met in order to apply a fiscal unity between affiliated companies:
- The consolidation scope is limited. Only Belgian companies may participate. In addition, they must be parent or subsidiary companies, or sister companies with their permanent establishments within the same parent company situated in Belgium or the EEA.
- The companies must have a minimum participation ratio of 90% for the entire financial year. In short, a flat group structure is desirable in order to obtain the maximum benefit from this ruling.
- The companies must have been affiliated for 5 consecutive years. This avoids any optimisation through the relocation of companies outside the scope of consolidation. Or by an opportunistic acquisition of loss-making companies. That 5-year period shall commence on 1 January of the 4th calendar year preceding the calendar year to which the assessment year is referred.
- The companies must have financial years with the same fiscal year.
- A company that makes premises available to a managerial natural person or to his spouse or dependent children is out of the question.
- Companies that benefit from a different tax regime are excluded. These include investment companies taxed on a limited taxable basis, companies benefiting from the tonnage tax or the diamond regime, etc.
Formal requirements for fiscal unity
If you opt for a fiscal unity during a specific financial year, a number of formal conditions apply:
- Each participating company or permanent establishment will continue to submit its own corporate tax return in Belgium. From now on, however, there will be an additional appendix that deals with the fiscal consolidation regime.
- For each financial year, the companies concerned must conclude a so-called group contribution agreement that meticulously defines all the fiscal consolidation modalities.
- Proof of the effective payment of the group contribution fee must be available at the latest when the corporate income tax return is filed. There is no file obligation for this payment.
- The companies involved must correctly record the payment and collection of the group contribution fee.
What if there is no EEA parent company?
Following a Parliamentary Question No. 349 of 11 May 2020 by Mr Matheï, an interesting case was discussed.
Suppose a U.S. company holds a direct participation of at least 90% in 2 Belgian companies. According to a strict application of the law, the two Belgian sister companies cannot benefit from the group contribution scheme, because they do not have a common EEA parent company.
But what if there is a non-discrimination rule in a double taxation treaty? This is the case in the double taxation treaty between Belgium and the US.
In his answer to the Parliamentary Question, the Minister of Finance recalled that the non-discrimination provision of Article 23, §5 of the Belgian-American Double Taxation Treaty corresponds to the provision in both the OECD Model Treaty and the Belgian Model Treaty. That already gives the Minister's answer a broad scope.
What is the impact of a non-discrimination rule?
The concrete impact of a non-discrimination rule is that Belgian subsidiaries of a U.S. parent company cannot suffer a tax disadvantage compared to Belgian subsidiaries with a Belgian parent company. A non-discrimination rule in a double taxation treaty takes precedence over domestic law.
Belgian sister companies with a common American parent company can therefore also fall back on the Belgian group contribution rule. Provided, of course, that all other conditions are met. Needless to say, this administrative explanation is very welcome for the tax practice in Belgium.
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