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Guide to Tax Rulings in Belgium

(Belgisch recht)

Gebonden Engels 2012 9789087221577
Verkooppositie 5634
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Samenvatting

Belgium is a leading business centre, due to its geographical location at the heart of Europe, its multicultural population and its history. Multinational corporations (MNCs), both foreign and home grown, constitute the engine of Belgium’s economy, making Belgium one of the most globalized countries in the world. With its large number of foreign investors, Belgium’s tax legislators are aware of the importance of upfront legal certainty and, for this reason, the legal framework for a general formal rulings system was introduced as from 2003.

Guide to Tax Rulings in Belgium provides a unique insight into the Belgian tax structure and its world-class tax rulings system. The book begins with a high-level overview of the main tax issues that investors might face and a description of the Belgian tax rulings system. From a business perspective, the book sets out how tax rulings can support investors in establishing, operating or changing their business infrastructure in Belgium. The book gives numerous examples of successful cases and shows how tax rulings can proactively underpin investors’ specific solutions.

Tax rulings are a very powerful risk management instrument, and Guide to Tax Rulings in Belgium demonstrates how a smart use of the Belgian rulings system can proactively support businesses. Tax advisers worldwide can benefit from the transparency of the robust Belgian rulings practice as a source of inspiration: e.g. in the field of transfer pricing, multiple rulings provide concrete cases of Belgian solutions to transfer pricing issues in line with the OECD Guidelines.

The book is a valuable guide for MNCs already present in Belgium, foreign direct investors interested in having a presence and inbound investments in Belgium, tax advisers worldwide, and business people.

Specificaties

ISBN13:9789087221577
Taal:Engels
Bindwijze:gebonden
Aantal pagina's:378
Druk:1
Verschijningsdatum:1-11-2012

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Inhoudsopgave

Foreword v
Preface vii
Abbreviations ix

Part I Welcome to Belgium, the Capital of Europe
Chapter 1: Introduction 3
1.1. Setting the scene 3
1.1.1. Solution-minded, multilingual workforce 3
1.1.2. Life is good in Belgium 4
1.1.3. A highly developed transport network 4
1.1.4. Associations and schools in all languages 4
1.1.5. Set up a company in just 3 days 4
1.1.6. Research & development 4
1.2. The Federal State structure in Belgium and how poweris devolved 5
1.3. Business-friendly government administrations 5

Part II The Belgian Tax Scene at a Glance
Belgian tax reform: New Belgian tax measures 9
Restated general anti-tax abuse measure 9
General thin-cap rules 10
Chapter 2: Corporate Income Tax 13
2.1. Introduction 13
2.2. High-level overview of the tax base computation 13
2.2.1. Upward tax base adjustments 13
2.2.2. Tax reliefs 14
2.2.2.1. Allowed business expenses 14
2.2.2.2. Payments to tax havens 14
2.2.2.3. Exempt foreign income 15
2.2.2.4. Dividends-received deduction (DRD) 15
2.2.2.5. Notional interest deduction (NID) 15
2.2.2.5.1. Adjustments 17
2.2.2.5.2. Changes during the financial year 18
2.2.2.6. Patent income deduction (PID) 18
2.2.2.7. Carry-over tax losses 19
2.2.2.8. Increased investment deduction 19
2.2.2.9. Realized capital gains and losses 19
2.3. Withholding taxes on dividends, interest and royalties 20
2.3.1. Withholding tax on dividends 20
2.3.2. Withholding tax on interest 21
2.3.3. Withholding tax on royalties 22
2.4. Deductibility of royalties, interest and dividends 23
2.5. Double taxation treaties 23

Chapter 3: Personal Income Tax 25
3.1. Belgian tax residence 25
3.2. Taxable income and deductible components 26
3.3. Tax rates 26
3.4. Real estate income 26
3.5. Income from movable property 26
3.6. Miscellaneous income 27
3.7. Earned income 27
3.7.1. Determination of net income 27
3.7.2. Expenses qualifying for tax relief 28
3.8. Expatriate tax status 28
3.9. Investment income for individuals 29
3.9.1. Investment in movable assets for individuals 29
3.9.2. Investment in immovable property by individuals 30

Chapter 4: VAT and Customs Duties 33
4.1. VAT 33
4.1.1. Registration for VAT in Belgium 33
4.1.2. VAT rates 33
4.1.3. Invoicing 34
4.1.4. VAT accounts and record-keeping 34
4.1.5. VAT returns 34
4.1.6. VAT refunds 34
4.1.6.1. VAT incurred in Belgium 34
4.1.6.2. VAT incurred in foreign countries 35
4.1.7. The domestic reverse-charge principle 35
4.1.8. E.T. 14,000 licences 35
4.2. Imports and exports in Belgium 36
4.2.1. Customs 36
4.2.1.1. The Harmonized System and binding tariff information 36
4.2.1.2. Origin 36
4.2.1.3. Customs valuation 37
4.2.1.4. Import restrictions 37
4.2.1.5. Customs duties, excise duties and agricultural levies 37
4.2.1.6. VAT on imported goods 38
4.2.1.7. Customs warehousing 38
4.2.1.8. Use of local representation for customs purposes 39
4.2.1.9. Use of local representation for VAT purposes 39
4.2.1.10. Exports 40

Chapter 5: Registration Duties Relevant to Businesses 41
5.1. Introduction 41
5.2. Ad valorem registration duties 41
5.2.1. Sale of real estate 41
5.2.2. Lease of real estate 42
5.2.3. Transfers of assets to Belgian companies 42
5.2.4. Creation of mortgages 42

Part III Advance Tax Rulings in Belgium
Chapter 6: What Is an Advance Decision? 45
6.1. Introduction 45
6.2. What is an advance decision? 46
6.3. How long is an advance decision valid? 46

Chapter 7: Modus Operandi 49
7.1. Team 49
7.2. Pre-filing phase 50
7.3. Formal application 50
7.4. Evaluation and negotiation 51
7.5. Formal decision 51
7.6. Publication of rulings 52

Chapter 8: Rulings Decision Tree 55
8.1. Scope of application: Qualifying subject matter 55
8.1.1. All federal taxes 55
8.1.2. Regional taxes collected by the federal state 56
8.1.3. Operations out of scope 56
8.2. Requisite “advance” character 57
8.3. Cost/benefit analysis 57
8.3.1. Main advantages 58
8.3.2. Disadvantages 58
8.4. Fair chance of winning 59
8.4.1. Statistics are very positive 59
8.4.2. Fair chance of winning depends on the subject
matter and quality of the application 59
8.5. Information disclosure 59
8.6. Conclusion 60
Part IV
Transfer Pricing in Belgium

Chapter 9: Transfer Pricing Framework 63
9.1. Belgium’s long experience with unilateral APAs for specific “safe harbour” regimes 63
9.2. Belgium follows the OECD’s TP Guidelines 64
9.2.1. Scope of the arm’s length rule 65
9.3. Abnormal or gratuitous benefits 66
9.3.1. Abnormal or gratuitous benefits granted 68
9.3.2. Abnormal or gratuitous benefits received 69
9.4. Belgian TP audit practice 69
9.5. The five TP methods described in the OECD Guidelines 70
9.5.1. Traditional transactional methods 70
9.5.2. Transactional profit methods 70
9.6. Revised Chapters I-III of the OECD TP Guidelines 71
9.7. Belgium’s TP ruling practice 72
9.7.1. How applications are formulated 72
9.7.2. Validity of rulings 73
9.7.3. Markup percentages 73
9.7.4. Interquartile range 73
9.7.5. Disbursements 73
9.7.6. Net finance costs 73
9.7.7. Exceptional costs 74
9.7.8. Standard cost-plus formula 74
9.7.9. Cap and floor 74
9.7.10. Financial crisis 74
9.7.11. Exit goodwill 74
9.7.12. Cost-plus method for intra-group services 75
9.8. What goes into a TP ruling application? 75
9.9. Notice on simplified TP studies 76
9.10. Bilateral and multilateral APAs 76

Part V Setting Up and Operating
Your Business in Belgium

Chapter 10: Operating in Belgium via a Permanent Establishment 81
10.1. Introduction 81
10.2. The concept of a permanent establishment 82
10.2.1. Presence of a PE on the basis of the OECD Model Tax Convention (MTC) 82
10.2.2. Material PE 82
10.2.3. Exception for preparatory or auxiliary activities 83
10.2.4. Personal PE 84
10.2.5. Belgian establishment 84
10.3. Sample rulings on whether there is a PE in Belgium 85
10.3.1. Construction site in Belgium 87
10.3.2. Example of a material PE 87
10.3.3. Activities not limited to preparatory or auxiliary services 88
10.3.4. Activities limited to negative case 88
10.3.5. No PE, but a Belgian establishment 89

Chapter 11: Taking Over an Existing Company with Carry-Over Tax Deductions 95
11.1. Company in trouble because of the financial crisis 95
11.2. What does the law say? 96
11.3. What is a change in control? 96
11.4. Examples of change in control 98
11.5. What are legitimate needs of a financial or economic nature? 98
11.6. Cases apt for a ruling application 99
11.7. Examples of recent rulings 100
11.7.1. In the framework of international restructuring 100
11.7.2. Change in control of companies in difficulties 103
11.7.3. Changes for various reasons 105

Chapter 12: Investing and Divesting 107
12.1. Introduction 107
12.2. Financial lease versus operating lease 107
12.3. Long lease right 109
12.3.1. Application in recent decisions 109
12.4. Usufruct (life tenancy) 111
12.4.1. Sample usufruct decision 112
12.5. Purchase of real estate via an asset deal or a share deal 113
12.6. Registration duties: Anti-abuse provision 114
12.7. Doctrine of simulation (or sham) 116
12.8. Depreciation rules 117
12.8.1. Depreciation of goodwill 119
12.8.2. Impairment 119
12.8.3. Depreciation of trademarks 120
12.8.4. Rulings on depreciation 120
12.9. Provisions for major periodic repairs to real estate 123
12.10. Property tax on machinery and equipment 123
12.11. Disposal of fixed assets 124
12.11.1. Treatment of capital gains and losses 124
12.11.2. Spread taxation regime 124
12.12. VAT aspects 125
12.12.1. Construction of a new building – VAT group 125
12.12.2. Sale of a new building is subject to VAT 126
12.12.3. Lease of goods immovable by nature exempt from VAT 126
12.12.4. Not considered as a lease of property immovable by nature 127
12.12.5. Lease of storage space up to 10% of which can be used for another purpose is VAT-able 128
12.12.6. Qualifying lease by a specialist company is subject to VAT 129
12.12.7. VAT revision upon sale 130
12.13. Outbound investments in real estate 130

Chapter 13: Employment in Belgium: How Rulings Can
Support Tax-Friendly Compensation Techniques 133
13.1. Benefits in kind 133
13.2. Tax-free “social benefits” 135
13.3. Company cars 137
13.4. Lump-sum allowances for costs attributable to the employer 138
13.4.1. Introduction 138
13.4.2. General parameters and practical procedures 139
13.4.3. Allowances for home offices, representation costs, secondary car costs, telecommunications costs, etc. 140
13.4.4. Meal allowances 142
13.4.5. Commuting allowances 142
13.4.6. Foreign business trips 143
13.4.7. Specific communications costs 143
13.5. Rulings to support the deduction of business expenses 144
13.5.1. By the employer 144
13.5.2. By employees 144
13.6. Rulings to clarify tax-reporting obligations 145
13.7. Deferred compensation 147
13.8. Waiver of fees 148
13.9.. Severance payments 148
13.10 Staff equity participation 149
13.10.1. Stock options 149
13.10.1.1. Over-the-counter stock options 150
13.10.1.2. Changes to stock options further to a restructuring 151
13.10.2. Warrants 154
13.10.3. Shares 155
13.10.3.1. Stock purchase plans 156
13.10.3.2. Conditional award of shares: Only taxable when the condition is fulfilled 157
13.11. Second-pillar pensions 158
13.12. Miscellaneous 160

Chapter 14: Belgian Holding Companies 163
14.1. Introduction 163
14.2. Transferring the principal seat of a foreign holding company to Belgium 164
14.2.1. Company law aspects 164
14.2.2. Tax aspects 164
14.3. Substance requirements 165
14.4. Withholding tax on distributed dividends 166
14.5. Treatment of capital redemptions 166
14.6. Treatment of capital losses 167
14.7. Participation exemption regime: Dividends received deduction 168
14.7.1. General principles 168
14.7.2. General “quantitative” conditions or holding requirements 168
14.7.3. “Quantitative conditions” and the transparency test for foreign vehicles 169
14.7.4. Qualitative conditions or “taxation requirement” 171
14.7.4.1. Five legal exclusions (section 203(1°) to (5°) ITC) 171
14.7.4.2. Countries where the ordinary tax regime is notably more advantageous than in Belgium 172
14.8. Capital gains on shares 176
14.9. Can dividends from a Hong Kong company benefit from the DRD in Belgium? 178
14.10. Operating via a foreign permanent establishment 180

Chapter 15: Concentrating Financial Activities in Belgium 181
15.1. Adding financial activities 181
15.1.1. The business case 181
15.1.2. Potential challenges 182
15.1.3. Concentration of financial activities within an existing company in Belgium (Decision 2010.172 of 1 June 2010) 183
15.1.4. Other decisions 185
15.2. Creation of a separate finance company 186
15.2.1. Centralization of principal function in an existing Belgian entity 189
15.2.1.1. Centralization of EMEA business 190
15.2.2. Creating a separate finance company: Decision 900.472 of 9 February 2010 191
15.3. Functional currency 195
15.4. Transfer pricing 198
15.4.1. Interest received must be at arm’s length 198
15.4.2. Interest paid must be at arm’s length 198
15.4.3. Factoring 203
15.4.4. Intra-group finance 206
15.4.5. Prefinancing projects 208
15.4.6. Guarantees to group companies 208
15.4.7. Financial services charged at cost plus 209
15.4.8. Cash pooling 209
15.4.9. Other financial services 212
15.5. Exclusion of “tainted assets” from the NID computation base 213
15.6. Intra-company finance activities 213
15.6.1. Introduction 213
15.6.2. Favourable tax regime under the Business Continuity Act 214
15.6.3. Rulings Office Notice on waivers of debt, 22 June 2009 215
15.6.4. Sample decisions on waivers of debt 216
15.6.4.1. The provider of the waiver is a Belgian company 217
15.6.4.2. The provider of the waiver is not a Belgian company 221

Chapter 16: R&D Centres 225
16.1. Introduction 225
16.2. R&D investment relief 225
16.2.1. Its aim 225
16.2.2. Two types of relief 226
16.2.3. Qualifying R&D investments 226
16.2.4. Conditions 226
16.2.4.1. General conditions 227
16.2.4.2. Special conditions for R&D relief 227
16.2.4.3. Other conditions 228
16.3. Tax credit as an alternative 228
16.4. Foreign tax credits 229
16.5. Patent income deduction 229
16.5.1. Qualifying taxpayers 229
16.5.2. Qualifying patents 230
16.5.3. Qualifying patent income 230
16.5.4. Calculating the PID 231
16.5.5. Other features 232
16.5.6. Effective date 233
16.5.7. Frequently asked questions 233
16.5.8. Sample PID calculation 233
16.5.9. Rulings 233
16.5.9.1. Research centre requirement 234
16.5.9.2. Qualifying patents 234
16.5.9.3. Know-how 234
16.5.9.4. Importance of clear parameters for setting patent income 235
16.6. Arm’s length compensation for contract R&D operators 235
16.7. Payroll withholding tax incentive 236
16.7.1. Introduction 236
16.7.2. Conditions 237
16.7.2.1. Qualifying R&D programmes 237
16.7.2.2. Qualifying education 237
16.8. Expatriate tax status for researchers 238
16.9. Exemption from capital duty 238
16.10. Non-tax-related incentives 238

Chapter 17: Optimize Your Supply Chain but Watch for TP Issues 239
17.1. Back offices and shared service centres 239
17.1.1. Introduction 239
17.1.2. Sample rulings 240
17.1.2.1. Intellectual management support services 240
17.1.2.2. Management support, investment advice, strategic management and strategic consulting 247
17.1.2.3. IT outsourcing 250
17.2. Procurement centres 251
17.2.1. Introduction: Optimizing the procurement function 251
17.2.2. Sample procurement rulings 252
17.3. Manufacturing 253
17.3.1. Introduction: Trends in structuring the manufacturing function 253
17.3.2. Sample rulings 253
17.3.2.1. Toll manufacturing 253
17.3.2.2. Contract manufacturing 254
17.4. Regional logistics centre 256
17.4.1. Introduction 256
17.4.2. Warehousing rulings 258
17.5. Centralized repair centre 267
17.6. Sales (support)-related functions 268
17.6.1. Trends in structuring the “marketing and sales” function 268
17.6.2. Sample rulings 269
17.6.2.1. Active or passive sales support services 269
17.6.2.2. Sales as commissionaire 270
17.6.2.3. Low-risk distributors 271
17.6.2.4. Profit split method for integrated sales functions 276
17.6.2.5. Trading company selling in own name and for its own account 276
17.7. Central entrepreneur model 278
17.7.1. Introduction 278
17.7.2. Sample decisions of integrated business models with a foreign central entrepreneur 279
17.8. Royalties by wholesale distributor for use of commercial trademarks 280
17.9. Miscellaneous 281

Chapter 18: Some Relevant Customs Duties Rulings 283
18.1. Concepts 283
18.1.1. EU Customs Union and the Rulings Office 283
18.1.2. Customs tariffs 284
18.1.3. Bonded warehouse 284
18.1.4. Temporary importation/exportation 285
18.1.5. Inward processing – Processing under customs control 286
18.1.6. Outward processing 286
18.1.7. Single authorizations – One port/point of entry in the EU 286
18.1.8. Authorized consignor – consignee – exporter 287
18.1.9. (Preferential) origin 287
18.1.10. Authorized Economic Operator 288
18.2. Customs values 288
18.2.1. Examples of decisions regarding customs duties 289

Part VI Stay Dynamic: Altering or Reducing Your Business in Belgium
Chapter 19: Restructuring Your Legal Set-Up in Belgium 297
19.1. Introduction 297
19.1.1. The framework at a glance 297
19.1.2. Typical issues raised in ruling applications relating to reorganizations 299
19.2. The Companies Code 299
19.3. Income tax rules on reorganizations 300
19.3.1. Universal transfer of assets or transfer of a branch of activity 300
19.3.2. Domestic mergers and divisions 301
19.3.2.1. Merger goodwill or badwill 302
19.3.2.2. Impact on carry-over tax losses (in a tax-free merger) 303
19.3.3. Cross-border mergers and divisions 303
19.3.4. Retroactive accounting and tax impact of reorganizations 304
19.3.5. Specific anti-abuse measure 306
19.4. Topics suitable for ruling applications 307
19.4.1. In a tax-neutral transfer 307
19.4.2. Valid commercial reasons for mergers, divisions or contributions 307
19.4.2.1. Maintenance of jobs 307
19.4.2.2. Sample cases fulfilling the requirement for valid commercial reasons 308
19.4.3. The principal objective or one of the principal objectives may not be tax evasion or avoidance 319
19.4.3.1. No tax benefits 319
19.4.3.2. No debt push-down 321
19.4.3.3. Commitment to hold new shares received further to a tax-neutral division or transfer for a minimum period 321
19.5. Indirect taxes 323
19.5.1. Exemption from VAT 323
19.5.2. Exemption from registration duties 325
19.5.2.1. Universal transfers of assets 325
19.5.2.2. Transfer of a branch of activity 325

Chapter 20: Restructuring Your Business Operating Model in Belgium 329
20.1. Key tax considerations when moving from decentralized to centralized business models 329
20.1.1. Conversion and “exit” taxation 329
20.1.2. TP risks 329
20.1.3. Need for genuine economic substance 329
20.1.4. Permanent establishment risk 330
20.1.5. CFC rules 330
20.1.6. Impact on existing tax planning 330
20.1.7. Indirect tax issues 330
20.2. OECD guidance on the TP aspects of business restructurings 331
20.2.1. Disregard for or recharacterization of taxpayer restructuring transactions 331
20.2.2. Taxpayer allocations of risk 332
20.2.3. Transfers of “profit potential” 332
20.2.4. Role of “options realistically available” 335
20.3. Sample rulings involving business conversions 335

Chapter 21: Liquidating Your Belgian Company 345
21.1. Statutory voluntary liquidation procedure 345
21.1.1. What is voluntary liquidation? 345
21.2. Tax aspects of voluntary liquidation 346
21.2.1. The taxation of companies in liquidation 346
21.2.1.1. Company in liquidation continues to be subject to CIT 346
21.2.1.2. Balance of carry-over tax deductions is forfeit 346
21.2.1.3. Assessed or realized capital gains 346
21.2.1.4. Taxation of liquidation proceeds 347
21.2.1.5. Share premium 347
21.2.1.6. Belgian 10% WHT on liquidation proceeds 347
21.2.2. Taxation of proceeds from liquidation of a subsidiary in the hands of its Belgian parent 348
21.3. Topics suitable for a ruling request 348
21.4. Negative liquidation 349
21.4.1. Rulings on negative liquidations 350

Chapter 22: Tax Incentives for Audio-Visual Productions 353
22.1. Introduction 353
22.2. General features of the tax shelter regime 353
22.2.1. Obligations on companies wishing to invest 353
22.2.2. Obligations on companies benefiting from investments 354
22.2.3. Obligations as regards productions benefiting from investments 354
22.2.4. Obligations on how the investment must be made 355
22.2.5. Obligations as regards financing the audio-visual work 355
22.2.6. Calculating the total exemption 356
22.2.7. When is the exemption final? 356
22.3. Some relevant tax rulings 356
22.3.1. The implicit “views” of the RO 356

Chapter 23: Maritime Transport 359
23.1. Avoidance of international double taxation of shipping activities 359
23.2. Tonnage tax system 359
23.2.1. Tonnage tax in a nutshell 359
23.2.2. Who qualifies? 360
23.2.3. Eligible shipping activities 361
23.2.4. Calculating the tonnage tax base 361
23.2.5. Place of business 362
23.2.6. EU flag requirement 362
23.2.7. Tax ruling required; validity of the ruling 362
23.2.8. Points to note 363
23.3. Sample TTS rulings 363
23.3.1. Qualifying vessels 363
23.3.2. Separate maritime transport division 366
23.3.3. Profits from maritime transport 366
23.3.4. The 3 to 1 rule 367
23.4. Other benefits for shipping companies not electing for the TTS 368
23.4.1. Accelerated depreciation scheme 368
23.4.2. Exemption from capital gains on vessels 368
23.4.3. Investment deduction 369
23.4.4. Notional interest deduction 369

Appendix 1: Rulings Act of 24 December 2002 371
Appendix 2: Simplified Transfer Pricing Study: Notice of 22 June 2009 375
List of Contributors 377

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