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Dear client,
2009 has come to an end and the year 2010 is preparing itself to get started.
2009 has been a year of great publicity for Belgium: we delivered the first European president, we won the US open with a wild card and we were in Space for several months. However our football teams are fading from the global landscape and we Belgians seem to just have discovered our whereabouts...
It seems to be a good time to look back at 2009 and to summarize what the tax landscape will be in 2010.
But before all these thoughts, Ernst & Young wishes you all the best for the New Year.
Although there is a lot of uncertainty let this be clear: if taxation worries you, Ernst & Young will be there to support you!
2009 has been a year of change and uncertainty.
"Economical and financial" tax legislation
In 2009 tax law was very much driven by economical needs. New forms of bankruptcy avoidance schemes including tax measures were enacted and extended payment facilities for social security and wage withholding tax, were issued. The Ruling commission showed a good comprehension of the economical situation and issued for the first time, rulings on deficit liquidation with important shareholder loans.
Mergers
Tax exempt cross border mergers especially within the EU, are really a fact in 2009 and almost ten years after the first discussions, parent-subsidiary mergers can now be fully tax exempted in Belgium.
Dividend received deduction
After a battle of 18 years the European Court of Justice now finally confirmed that deduction for dividends received can be carried forward. Why did it take so long? Everybody knew that the Belgian tax regulations were not in accordance with the parent-subsidiary directive. One may ask ourself why the tax authorities did not come to the same conclusion much earlier.
Corporate tax rate
No important tax measures have been enacted in 2009. Small measures, were fine tuned and new reporting obligations were introduced. Unfortunately the corporate tax rate has not been reduced. However, thanks to the notional interest deduction the effective tax rate of many companies could be reduced in a substantial way.
How will the Belgian tax landscape look like in 2010?
During the last few weeks, the government is somehow seeking compensations for the major financial injections in the banks and the economy as a whole. Let's look at a few of what we could call, "downsize" measures for 2010.
Our holding regime
The 95% tax exemption for dividends received has been adjusted for the "financial institutions" but also the investment minimum will be increased from EUR 1.200.000 to EUR 2.500.000.
Notional Interest deduction
The maximum percentage for the notional interest deduction has been capped for two years at 3,8%. This does not necessarily mean that the deduction will be lowered since that will depend on the evolution of the market interest rate. Taking into account the financial crisis one would however expect the interest rates to remain rather low.
Disallowed expenses
Environmental awareness these days is always a good justification to introduce less favorable tax regulations. Company cars with a high CO2-output will become less deductible.
In the same context the deduction for fuel costs has been lowered to 75%.
Our net salaries will decrease
An employee will have a different net salary because the benefit for the private use of the company car will change as from 1 January 2010. In addition other benefits may also have a negative impact on the net salary at that same date (f.e. private use of a mobile phone).
The C-suite is also affected. The lump sum deduction on the salaries of the directors will decrease from 5% to 3% together with certain advantages related to the private use of a building owned by a management company, will increase.
Something else is worrying us.
We discovered that not only the earth is warming up but also the tax authorities worldwide are. We notice increased focus on exchange of information amongst tax authorities cross border. You can no longer hide a vacation home in Germany or France from the Belgian tax inspector. Companies however are also under scrutiny. In practice we notice an increasing attention to the cross border tax situation of group companies. In the Netherlands the authorities have even introduced a new regime of exchange of information ("horizontaal toezicht") or a system of ongoing dialogue between the company, the tax consultant and the tax inspector to create a tax frame work to improve transparency of certain transactions.
It is very likely that in the near future that Belgium will also take certain steps. And already the first signs are there! The traditional year-end-law introduces a legal obligation to report transactions as from EUR 100.000 with tax haven companies in order to be further tax deductible. Certain reports of tax audits will have a different legal impact as regards the burden of proof.
Ernst & Young together with its clients, will focus on the tax administration without borders in the upcoming months.
But as for all new-year messages we want to bring some good news too
Positive trends in tax rulings, tax litigations and EU legislation result in more tools for a company to obtain a favorable tax situation or to dispute a possible tax claim.
The new deduction on meal vouchers and other gift vouchers together with the tempered taxation on the private use of company cars maintains a certain tax friendly regime for employers to appraise its employees.
If we compare the Belgian tax climate with other neighboring countries, we can conclude that the tax reputation of those countries has not improved either (German with its severe rules on tax losses and the Netherlands with its long lasting but finally abolished story of the Dutch interest box). Belgium still has a high corporate tax rate but our overall effective tax rate has decreased thanks to the notional interest deduction and our group interest deduction.
Another VAT revolution
2010 will be the year of the VAT Package. The VAT package contains a number of measures that will significantly adapt the current VAT principles and formalities. The most important modification concerns the rules that determine the place of supply of services. As from 1 January 2010 the main rule in a business to business relation (i.e. between taxable persons) will be that the service takes place where the recipient is established. In connection with this main rule a compulsory reverse charge mechanism will be implemented in an international context. Again a number of deviating sub-rules will need to be taken into account next to the main rule.
These changes impact the VAT reporting and VAT compliance (new boxes in the periodical VAT return, compulsory listing of services rendered to other EU companies, new invoice mentions, etc.). The new VAT legislation hits any company that is involved in international trade or acts in an international environment. More important is however that the VAT Package will extend the responsibility of companies in the field of VAT. The VAT Package has shifted the responsibility for VAT to the receiver of services - there where this used to be the main responsibility of the service provider. In this perspective, reporting and documenting transactions correctly will become more and more important. In most companies, the VAT Package is seen as an opportunity/obligation to (re)-consider the VAT function and implement adequate procedures.
Question is not only how companies will be dealing with these changes. Also the VAT authorities might have underestimated the impact of these new rules. We expect it might take years before the new system has stabilized.
On top of this VAT revolution other trends are announced for 2010 : administrative formalities used in the struggle against VAT fraud, VAT used as mechanism to re-launch the economy and sustain certain sectors, etc. It is also to be seen how one will deal with more recent means of communication (e-invoicing, electronic document retention, ...).
No doubt VAT will keep us busy in 2010.
More import duties to be paid?
2010 will present lots of new challenges and of course opportunities. The tax authorities are currently looking to increase revenue which is clearly reflected in the new draft customs rules resulting in a dutiable royalty agreements and a stop to the application of the earlier sale principle.
Excise duties on its way to automated exchange of information !
Excise duty on tobacco, alcohol and fuel has always been the prime tool for the government to meet budget. Once again, we anticipate the Authorities to be very creative in raising excise duty on excisable products; affecting pleasure but also the costs for business. Equally so, the excise procedures are also being automated in the course of 2010 aiming to reduce fraud though a top priority for all businesses dealing in these products.
Authorised Economic Operator (AEO), now or never?
The business is only now starting to seriously warm up to the idea of becoming an Authorized Economic Operator (AEO) company. Especially since some real benefits to the program are arising, such as lower guaranties, the simple fact that one needs to meet the AEO criteria to get a any trade facility in specific countries or for the simple reason that a trading partner wants you to. Next year, the never-ending strive towards trade compliance automation continues and things like the automated risk screening will possibly start affecting your business. Becoming AEO certified will prove to be good objective for 2010.
In the mid of all these evolutions there is one certainty : Ernst & Young will prepare and assist you in all the changes within the tax landscape!
The Ernst & Young Belgian tax team wishes you a Merry Christmas and a happy and very successful 2010.
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