Tax and Legal Seminar

Tax and Legal Seminar
Denis-Emmanuel Philippe
Associate Professor at the University of Liège (Tax Institute)
28 February 2012
[email protected]
Notional interest deduction (NID)
 Deduction of a deemed interest calculated on
the adjusted net equity
 No capital duty
loan
 Interest rate: 3% (TY 2013)
• Double dip if interest expense is deductible for
Corp
Corp
 Automatically applicable (no need for a ruling)
 Carry-forward of 7 years: abolished
 Reduces actual Belgian CIT burden
equity
• Standard rate: 33.99%
• ETR when NID rate was 4.473%
•
08.65% (6% return)
14.98% (8% return)
23.13% (14% return)
BELCO
GroupCo
loan
acquisition of receivables
license
 Decrease of rate to 3% => ETR will significantly
increase
•
Tax and Legal Seminar
16.99% (6% return)
21.24% (8% return)
26.71% (14% return)
28 February 2012
2
Notional interest deduction (NID)
- Decrease of rate to 3% (3.5% for SME's) for Tax
Year 2013 – Law of 28 December 2011
- TY 2012: possibility to carry forward excess NID
for 7 taxable periods in case of insufficient profits
(Ministry of Finance: FIFO)
- As of TY 2013: abolition of NID carry-forward in
case of insufficient taxable profit
Tax and Legal Seminar
28 February 2012
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Notional interest deduction (NID)
-
NID Carry-forward for current NID stock
-
Limitations:
 applied as the last operation in the corporate tax return
to determine the taxable base (after the deduction of
losses)
 Limited to 60% of the taxable base (save for the first
million EUR in profits)
 The remaining NID stocks will be carried forward
(regardless of the expiration of the 7-year carry-forward
period), until they are fully utilized
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28 February 2012
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New thin capitalisation rule
-
TY 2012: limited thin capitalisation legislation
-
Debt to equity of 7:1: financing by a taxpayer that is subject to a
tax regime that is substantially more advantageous than the
normal Belgian tax regime on interest
-
-
=> targets essentially loans granted by tax havens
Debt to equity of 1:1: financing by Belgian or foreign individual
shareholders or directors, or foreign corporate directors (outside
EU)
-
=> targets essentially loans granted to PME/KMO by individual shareholders/directors
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28 February 2012
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New thin capitalisation rule
TY 2013 : new debt : equity ratio of 5:1
1. Definition of “debt”
 all intra-group loans – group is defined by reference to the company law
concept of affiliated companies (Art. 11 of the Companies Code) and
 all loans where the beneficial owner of the interest is not subject to
income tax or where he is subject (in respect of the interest income) to a
substantially more beneficial tax regime than the Belgian common tax
regime.
 Exclusion: bonds and other debt issued by public offering are excluded,
as well as the loans granted by banks and other financial institutions as
meant in Art. 56, §2, 2° ITC.
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28 February 2012
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New thin capitalisation rule
 2. Definition of “equity”
 Equity is defined as the sum of the taxed reserves at the beginning of
the taxable period and the paid-in capital at the end of the taxable
period.
 Possibility to increase the share capital before year-end
 An anti-abuse measure will exist whereby loans guaranteed or funded
by a tainted third party (bearing part or all of the risks of the loan) will
be deemed granted by this third party (cf. the anti-channeling provision
for foreign tax credit purposes).
 3. Exception:
 companies engaged in movable leasing (cf. Art. 2 RD no. 55) and
companies with factoring or real estate leasing as main activity;
 companies with as main activity the execution of a PPP project
obtained in accordance with public procurement legislation.
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28 February 2012
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New thin capitalisation rule
 Questions :
 Risk of double taxation (>< thin capitalisation 18,4° CIT)
 Real estate companies, with carried forward accounting
losses : losses are not taken into account ? (// 18,4° CIT)
 Finance companies (engaging in back-to-back activities) :
net position (debts – receivables)?
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28 February 2012
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Form over substance – Section 344
BITC
 Section 344 BITC contains general anti-abuse provision
 Even if contractual terms are honoured, tax authorities may
recharacterise purely tax-driven transactions
 Strict conditions
 recharacterization does not alter the legal, financial and/or economic
consequences of the transaction chosen by parties
 Belgium’s highest Court : tax authorities can substitute the partie’s
characterization if the recharacterization leads to a similar legal result as the
initial legal characterization
 Proof that the legal characterization given by the parties was chosen
for tax reaons
 Tax payer may provide counter-evidence that there are legitimate business
needs
 provision only applicable in exceptional circumstances
New anti-abuse provision
 The new anti-abuse provision must allow the tax authorities
to combat tax avoidance more efficiently as it will render a
legal act or a series of legal acts inopposable to the tax
authorities when these tax authorities can establish the
existence of abuse of tax law.
Tax and Legal Seminar
28 February 2012
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New anti-abuse provision
"§ 1er. N'est pas opposable à l'administration, l'acte juridique ni l'ensemble d'actes juridiques réalisant
une même opération lorsque l'administration démontre par présomptions ou par d'autres moyens de
preuve visés à l'article 340 et à la lumière de circonstances objectives, qu'il y a abus fiscal.
Il y a abus fiscal lorsque le contribuable réalise, par l'acte juridique ou l'ensemble d'actes juridiques qu'il a
posé, l'une des opérations suivantes :
1.
une opération par laquelle il se place, en violation des objectifs d'une disposition du présent Code ou des
arrêtés pris en exécution de celui-ci, en-dehors du champ d'application de cette disposition; ou
2.
une opération par laquelle il prétend à un avantage fiscal prévu par une disposition du présent Code ou
des arrêtés pris en exécution de celui-ci, dont l'octroi serait contraire aux objectifs de cette disposition et
dont le but essentiel est l'obtention de cet avantage.
Il appartient au contribuable de prouver que le choix de cet acte juridique ou de cet ensemble d'actes
juridiques se justifie par d'autres motifs que la volonté d'éviter les impôts sur les revenus.
Lorsque le contribuable ne fournit pas la preuve contraire, la base imposable et le calcul de l'impôt sont
rétablis en manière telle que l'opération est soumise à un prélèvement conforme à l'objectif de la loi,
comme si l'abus n'avait pas eu lieu".
Tax and Legal Seminar
28 February 2012
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New anti-abuse provision
 Abuse of tax law (whose existence must be proved by the tax authorities)
is defined as follows: the taxpayer:
 puts himself outside of the scope of a tax provision of the Income Tax Code or its related
decrees in a way which is incompatible with its objectives; or
 puts himself within the scope of application of a provision of the Income Tax Code or its
related decrees granting a tax benefit in a way which is incompatible with its objectives.
 Tax authorities can use all means of evidence, including “presumption of
fact” to prove existence of abuse of law
 Matter is a determination of fact within the absolute discretion of the court
 The taxpayer may escape by invoking the existence of other sufficient
non-tax objectives for his legal act(s).
 Such non-tax objectives may not be so immaterial that no reasonable person would
perform the legal act for this non-tax objective prove (sufficient) non-tax motives for the
legal act(s).
 Example : economies of scale (ECJ, arrest Foggia)
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New anti-abuse provision
 Parliamentary works: new anti-abuse provision aims at attacking “Wholly
artificial arrangements”
 Legal acts that do not meet the economic objectives of the tax provisions concerned or that
are not performed under normal economic or financial conditions
 Recommendation: properly document (in reports of board of directors) the specific and
material non-tax objectives connected with any legal act(s) that is (are) contemplated
 Consequence of the application of the new anti-abuse rule
 The legal act is subject to a tax regime that is in line with the objectives of the tax rule, as if
the abuse of tax law would not have taken place.
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Example of financing structure
BVI/Jersey
20%
Belgium
interest
New anti-abuse provision : Example 1
BVI/Jersey
100%
interest
Luxembourg
20%
Belgium
interest
New anti-abuse provision
Abuse of law => Ultimate lender (BVI) has a
claim directly against initial borrower (BelCo)
21% WHT on interest payments
Tax and Legal Seminar
28 February 2012
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Private equity
Investor
BVI
LuxCo
BelCo
.
OpCo
OpCo
OpCo
OpCo
OpCo
New anti-abuse rule
 Approx. 10 rulings : art. 344 BITC not applicable  dividend
distribution by BelCo to LuxCo may not be reclassified in
dividend distribution by BelCo to Private equity investor
 Case-law : recent decision of 6 November 2009 of Tribunal of
Brussels
 Sale by BelCo of OpCo’s (exempt capital gain) to Australian
company (in the framework of an IPO)
 Liquidation of BelCo and LuxCo the same day
 Tribunal : art. 344 BITC not applicable (counter-evidence of
legitimate business needs) => relevant under the new anti-abuse
rule
 Liquidation bonus distributed to LuxCo >< Private Equity investor  no
withholding tax