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taxation.be

Friday
Mar 22nd
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Belgium

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Belgium is a federal state, with three Regions and three Communities, ten Provinces and 598 municipalities or communes.

The federal state structure has gradually evolved over the years (click here for a good summary in French). It is complicated by the fact that the Regions and the Communities overlap.

  • The Regions are mainly a geographic indication. The Brussels Capital Region is wedged between the Flemish Region in the north and the Walloon Region is the South.

  • The Dutch-speaking Community mainly covers Flanders and the Dutch speakers in Brussels, the French-speaking Community deals with the French speakers in Brussels and Wallonia, while the German-speaking Community is located to the east of the Walloon Region.

Taxes are levied at the federal state, regional, provincial and municipal level.

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Newsflash

On April 9, the tax authorities have published on their website ( NL / FR ) a Practice Note on the uses and abuses of the Risk Capital Deduction.

The note is a loose compilation of the parliamentary discussions, the statements of the Finance Minister, decisions of the Ruling Committee and case law, hastily thrown together.  It is clearly a political document to reassure the critics that abuses will be attacked. It is also a clear sign to the multinational groups who have a treasury center, a financing company or an internal bank in Belgium and to the last of the coordination centers that stay in Belgium. They are not aimed at, and if they want to come to Belgium, the advance tax ruling makes interesting reading. Moreover, centralizing financing activities in a specialized purpose company or setting up specialized subsidiaries are economically justified transactions.

The companies that should worry are those that have used artificial constructions without any economic justification, with the sole aim of realising a tax saving.  That would be the case if they set up a separate entity to hold assets that would not qualify for the risk capital deduction. However, the practice note does not give the tax inspector a complete arsenal of foolproof weapons, but rather a check list of issues where he could use an anti avoidance rule.  Most items on the checklist are already on the check list of tax advisers.

The use of some of them, such as the general anti avoidance rule and the company’s object test, will result in long drawn court battles.  However, the most effective weapon may well be interest deduction for the financing of the equity base of a subsidiary, and that will not normally be a problem for a foreign parent company.