Annelies Dieusaert answers questions about Belgium's recent legislative changes
1. What is the most significant change to your region/jurisdiction’s tax legislation in the past 12 months?
The most significant change in Belgium’s tax legislation is the Belgian corporate tax reform, which has drastically changed the Belgian corporate tax regime. Next to a decrease of the corporate tax rate from 33.99% to 25%the corporate tax reform introduced, amongst others, the group contribution regime (a form of tax consolidation), implemented the ATAD (Anti-Tax Avoidance Directive) I and II Directive as well as increased the participation exemption from 95% to 100%.
In addition, Belgium adopted the 2017 OECD Transfer Pricing Guidelines by its circular letter dated 25 February 2020 (“TP circular”- 2020/C/35). The TP circular provides an overview of chapters I, II, III, VI, VII, VIII and IX of the OECD Transfer Pricing Guidelines 2017, which were adjusted following BEPS (Base Erosion Profit Shifting) Actions 8 to 10. The TP circular also provides guidance on certain financial transactions and a high-level discussion of the OECD guidelines on permanent establishments. Where required and appropriate, the TP circular states the Belgian tax authorities’ position.
In general, the Belgian tax authorities declare an adherence to the principles of the OECD Transfer Pricing Guidelines 2017, and state that it is likely that Belgium will also accept future changes to the Transfer Pricing Guidelines, e.g. the report released beginning of February 2020 by the OECD “Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS: Actions 4, 8-10”. This report was significant because it is the first time the OECD Transfer Pricing Guidelines include guidance on the transfer pricing aspects of financial transactions.
In addition, Belgium is closely following up on the OECD and the EU, and is also working on proposals to address tax challenges in the digital economy including the proposed Digital Services Tax by the EU, the OECD revised profit allocation and nexus rules (Pillar 1) and the OECD Global Anti-Base Erosion proposal ‘GLoBE’ (Pillar 2), as well as the proposed global tax reporting framework for digital platforms in the sharing and gig economy.
2. How do you anticipate that change impacting your work and the market moving forwards?
Belgian tax reform has re-written the Belgian corporate tax landscape and is therefore creating a lot of opportunities for tax professionals to determine the impact of this reform together with their clients.
In addition, the Belgian tax authorities (Ruling Commission, TP audit squad, competent authority, etc.) have become increasingly knowledgeable because more guidance has been issued by the OECD and (recently) the TP circular.
This resulted in more aggressive positions (that are to a certain extent reflected in the TP circular), which were not entirely in line with taxpayers’ expectations. Moreover, in the case of TP audits, we observe less willingnessin generalto come to a compromise and a general persistence to stick to their point of view, which eventually results in more court cases and mutual agreement procedures (MAPs). In this regard, taxpayers have been increasingly interested in negotiating bi- or multilateral advance pricing agreements (BAPA or MAPA).
We expect this trend to continue and even to intensify, even without the COVID-19 global disruption. Hereafter, the COVID-19 pandemic is expected to result in (i) a temporary modification of a group’s TP policy; and, (ii) restructurings with corresponding costs, etc., documentation related to said aspects will need to be documented towards tax authorities, which are very likely to be questioned anyhow. As a result, the COVID-19 pandemic will only increase the number of TP audits, TP court cases, MAPs and BAPA/MAPA procedures.
In relation to the OECD and EU framework with respect to the digital economy, when adopted it will hit many sectors with a more substantial impact on the multinational companies in digital-oriented and intangible-intensive sectors. For large multinational companies, this means that they will need to understand the tax, do impact and gap assessments, launch implementation projects that put forward changes across their global footprint, resources, people, processes and technology, confirm that the digital tax processes are then successfully run in the business-as-usual mode, tax is calculated, paid and reported in a compliance manner, and that there is an overarching control framework. Furthermore, this is also likely to change underlying tax planning. For tax professionals it means a massive opportunity to assist clients to make this change in a smooth, efficient and compliant manner, providing end-to-end services in handling the change, as well as assisting in reviewing and enhancing the tax strategies for going forward.
Equally, similar changes will be required from the digital platforms that will fall within the ambit of the proposed Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy. If and when adopted by countries, these rules will require digital platforms to identify sellers/income receivers and collect and report data to the local tax administration, who will then share the information with the tax administration where the seller is located. In order to be compliant, platform operators will need to understand and implement such rules. This, in turn, will require tax professionals to be ready and be able to support the platforms in this tax change journey.
3. What impact do you see the COVID-19 pandemic having on your work directly and on the wider tax environment, in both the short and long term?
The answer of this also partly lies in my response to question two (please see above).
As the COVID-19 global disruption is expected to result in (i) a temporary modification of a group’s/company’s TP policy; and, (ii) restructurings with corresponding costs, etc. Said modification, although of temporary nature, will need to be substantiated and documented towards tax authorities.
In this regard, since the Belgian tax authorities were already seen as being more aggressive, this will only increase in the future due to COVID-19 and add to the negative effects on the country’s financial position.
Moreover, in the longer term, the consequences of COVID-19 could enforce taxpayers to revisit/reevaluate their operating/business model (e.g. other focus areas, other ways of operating/working, etc.), which will also require the necessary substantiation and documentation:
- Arm’s length character of the conversion itself
- Arm’s length character of the post-conversion operating/business model
In my view, it is reasonable to expect an increase in the number of TP audits, TP court cases, MAPs and BAPA/MAPA procedures.
Concerning the taxation of the digital economy, the COVID-19 pandemic has spurred the desire of many countries to adopt a digital services tTax, given that the operators of the digital economy were thriving during the quarantine period, whereas many local brick-and-mortar businesses were shut down and are now struggling to make ends meet.
Also, COVID-19 has and will continue to intensify the provision of digital services and sale of goods, as a result bringing more activities in scope for the proposed taxation of the digital economy.
4. Given the likely long-term implications of COVID-19 on things like remote working and digital retail, how do you see tax technology developing to accommodate this new reality and where do you think the next area of focus might be?
The OECD has been releasing, and will continue to release, guidance regarding taxation in a more digital world.
Increased focus should, in my view, be on the link between IT systems, TP policy, TP implementation and TP monitoring (i.e. TMC) in view of TP audits, and the efficiency of internal tax/financial departments at the level of the taxpayers, etc.
Indeed, the current environment also strongly facilitates the development of new tax technology across the full spectrum. The focus will be shifting based on how tax processes are managed. Tax technology solutions can resolve clients’ challengesresource and cost restraints, delays, errors, inconsistencies, uncertainties, tax authority requests, etc.:
- For global and local purposes
- For direct and indirect taxes, existing taxes and proposed taxes
- Technology generated responses to tax authority and business leadership requests
- Data analytics to support management’s ability to react, plan and forecast
Consequently, clients will need help with overall tax technology architecture (tax operating models, tax digital strategies, tax data management, control frameworks, integration of tax systems in finance and other systems), as well as devising/enhancing tax data/transaction-based tools that enable instant data gathering/classification/analysis/plugging/reporting for tax purposes, as well as platforms for consolidating global tax positions, law, analysis audit trails, etc.
New technologies like artificial intelligence (AI), blockchain and the internet of things (IoT) offer a lot of opportunities, and many tax authorities and taxpayers are considering the leading practices uses. For example, AI could be used to automate repetitive tax processes, to extract tax-sensitive data, scan tax information to create tax data pools, identify tax deductions and credits, apply tax classification, etc. Blockchain can eliminate the need for the business to act as an intermediary for VAT purposes (and a smart contract could withhold and transfer the tax automatically), payroll taxes, etc.
5. What potential other legislative changes are on the horizon that you think will have a big impact on your region/jurisdiction?
- Potentially a new TP circular covering COVID-19 impact and guidance how to deal with it/recommendations in terms of documentation
- OECD work on the taxation of the digital economy
- Unilateral digital services taxes adopted by separate countries if the OECD/EU digital tax does not go through
- The EU Action Plan for Fair and Simple Taxation Supporting the Recovery Strategy
6. What are the potential outcomes that might occur if those changes are implemented?
The OECD work on taxation of the digital economy would re-design profit allocation and nexus rules drastically and, together with the GLoBE proposal, would result in a new international tax landscape.
This will also, together with the increased transparency rules, systematically increase the number of TP audits, TP court cases, MAPs and BAPA/MAPA procedures.
7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Yes, current recurring work of TP documentation/TP reporting and IP valuation and innovation income deduction, etc., is expected to continue going forward.
In addition, the global market can expect an increase in the number of TP audits, TP court cases, MAPs and BAPA/MAPA procedures and the increased importance of TMC.
8. What legislative changes would you like to see be implemented that you think would have the most positive effect on your practice and the wider regional/jurisdictional market?
Extension of current R&D tax incentives regime (i.e. patents and software) to marketing-related intangibles such as brand, trademark, trade name, etc. This would broaden the scope of the firm’s annual and recurring work.
9. Do you think something like that is likely to be implemented in the near future?
Not in the near future, given the more aggressive attitude – in terms of audit – towards the current R&D tax incentives regime.
10. What have been the biggest developments in tax technology and where do you think the next area of focus might be?
More automation embedded in enterprise resource planning (ERP) to support tax processes other than indirect tax, e.g. transfer pricing and direct taxation.
