Companies need to take an international business approach: "Tax advice should go further than simply Belgian tax law"
Lower corporation tax. The Summer Agreement appears to have brought nothing but benefits. But is that really the case? It is well worth analyzing it and being prepared, says service provider KPMG.
Last year the federal government reached an agreement on the reform of corporate taxation. Initially, this tax rate will drop from 33.99 to 29.58 percent. From 2020 onwards, companies will pay a rate of 25 percent (20 percent for SMEs).
This is an important step for Belgium, says Koen Van Ende, Tax Expert and Partner at KPMG. "Our nominal tax rate was, until recently, exceptionally high compared to the other OECD countries. A reduction was more than welcome. This rate is applied to a defined taxable base, and that will also be changing."
An important example of this change are the new rules relating to the offsetting of losses, explains Stefanie Pauwels, Tax Expert and Partner at KPMG. "In the past, company losses could always be offset against later earnings. But under the new rules, in any year where you make an annual profit of over 1 million Euro, you might still have to pay corporation tax, regardless of any accumulated past losses."
A second adjustment to the offsetting of losses is, in turn, positive for companies that belong to the same group. From 2019 onwards, there will be a form of tax consolidation in Belgium. Koen Van Ende: "This means that profits made by one Belgian company belonging to a group can be transferred to another Belgian member of the group that is making a loss. So basically you might only pay tax on the balance: the combined net profits of the Belgian entities within the group.“
Alongside these measures which are driven by Belgian interests, there are also parts of the reform that are following European trends, such as, for example, the limitation of the deduction of interest. Stefanie Pauwels: "Companies will now only be able to deduct the net interest owed, if it represents no more than 30 percent of their fiscal EBITDA (earnings before deduction of interest, tax, depreciation and amortization, ed.)."
The combination of new rules will have a serious impact on many companies, says Koen Van Ende. "Not just because the tax calculations are becoming more complex, but also because there will likely be cases where they will have to pay more tax. Some rules are also being introduced simultaneously in all EU countries. So they are certainly important for companies that operate internationally. They will definitely want to avoid paying tax on the same income in two countries."
Companies with foreign subsidiaries or international operations are therefore well advised to look beyond the world of purely Belgian tax. The Netherlands, France and the United Kingdom have also introduced or announced tax reforms, clarifies Stefanie Pauwels. "In those countries, too, the reduction of the corporate tax rate is the common thread of their reforms. That can also have a major impact on Belgian companies present in those countries."
"We must also not underestimate the tax reforms in the United States", insists Koen Van Ende. "There, too, the federal corporate tax rate is dropping spectacularly, to 21 percent. Just like in Belgium, there are also changes to the rules defining the taxable base. Companies that, for example, pay royalties to subsidiaries outside the US or want to expand their production capacity there, need to thoroughly review the interaction between the international rules."
Whether, in practice, all the reforms are to the benefit of a company, or not, needs to be analyzed case by case. That is why professional consultancy is really important, Stefanie Pauwels finds. "Companies need a specialist who can dissect all the technical details of the different reforms. Someone who can estimate the impact of the reforms on the basis of their analysis, and make specific recommendations. These reforms are the most significant that I have seen during my career. Companies really do need to study them clearly and thoroughly. Both from a Belgian and from an international standpoint."
Belgium has few natural resources and primarily counts on its knowledge economy. Even before the Summer Agreement, a revised fiscal framework was introduced for innovative companies. Koen Van Ende, Tax Expert at KPMG: "This is a powerful fiscal incentive that applies across multiple sectors. So it does not just apply to laboratory activities, but also, for example, to software developers or some industrial companies that developed innovative new production processes. Innovative companies only pay tax on 15 percent of their net income from qualifying innovations. For them, the reduction in the rate is therefore combined with a reduction in the tax base. Our multidisciplinary teams are also able to provide tax advice and support to these companies."
This month, KPMG is organizing two seminars on the tax reform in the United States. Do you want to be able to properly assess the impact of this reform on your company? Click here for more info.