Belgium introduces exit tax rules as it implements ATAD
Belgium introduces a deferred payment regime for companies required to pay exit taxes on the cross-border relocation of assets, migration or restructuring in line with the EU Anti-Tax Avoidance Directive (ATAD).
At the end of 2016, Belgium introduced new legislation, giving all companies that are engaged in the cross-border relocation of assets, migration or restructuring the right to elect for the deferred payment of exit taxation (whenever triggered by such transactions). Under Article 5 (the provision on exit taxation) of the ATAD, such deferred payment regimes must be available to the companies of any EU member state.
Under the ATAD, choosing the deferral option implies that the exit tax can be paid in instalments over five years. Although ATAD provides that its exit taxation rules must apply in the member states from January 1 2020, Belgium already offers this deferred payment regime for transactions carried-out from December 8 2016 (the date when the law was published in the Belgian Official Gazette).
The Belgian legislator probably realised that further delay was not an option because the former regime, which provided for a one-off payment of the tax upon ‘exit’, was not compliant with the EU freedom of establishment rules, as interpreted by CJEU case law (National Grid Indus and DMC cases).
Transactions qualifying for the deferred payment regime
The option for the deferred payment of the exit tax is available for the following types of transfers and reorganisations:
The transfer (relocation) of assets/business from a Belgian permanent establishment (PE) to the company’s head office, or to another PE of the company, in another jurisdiction. To qualify, the head office or the transferee PE must be established/located in another European Economic Area (EEA) member state (not including Liechtenstein). Under Belgian domestic law, the transfer (relocation) of the assets of a Belgian PE, as well as the transfer of the business carried on by the PE, to the foreign head office or to a PE outside Belgium is, in principle, assimilated to a realisation of the assets/business, resulting in (exit) taxation of latent gains or goodwill. Under the new legislation, the company can now opt for deferred payment of the exit tax on such gains/goodwill, provided the intra-company relocation of assets/business is carried out within the EEA. Liechtenstein’s exclusion is because Belgium has no treaty with Liechtenstein on mutual assistance for the recovery of tax claims;
The transfer by a Belgian company of its place of effective management (real seat) and/or its registered office to another EEA member state (not including Liechtenstein). Under Belgian legislation, a transfer of the real and/or registered seat to another jurisdiction is, in principle, assimilated to a deemed realisation of assets and thus triggers (exit) taxation on latent gains and goodwill. However, roll-over relief is available for intra-EU transfers to the extent that the assets remain effectively connected to a Belgian PE. Under the existing roll-over provision, no relief is available if the corporate seat is transferred to a non-EU EEA member state irrespective of whether or not the assets remain invested in a Belgian PE, which seems an unjustified difference in treatment. The Belgian legislator, however, did not extend the scope of the roll-over relief provisions, but only introduced the option for deferred payment. If exit taxation is triggered as a result of the transaction (either because the assets do not remain connected to a Belgian PE, or because the corporate seat is transferred to a non-EU EEA member state), then an election can be made to defer the payment of the exit tax, provided the assets remain connected either at the migrating company’s head office or in a PE in another EEA member state (not including Liechtenstein); and
An outbound cross-border merger or (partial) division resulting in a Belgian company’s assets being transferred to an absorbing/receiving company established in another EEA member state (not including Liechtenstein). For cross-border reorganisations, similar rules apply as those for cross-border migrations (see above). If the merger or partial division is not tax-neutral, either because the assets transferred in the transaction do not remain connected to a Belgian PE or because the absorbing/receiving company is established in a non-EU EEA member state, a deferred payment election can be made, subject to the same geographical restriction, i.e. the assets must remain within the EEA, not including Liechtenstein.
No deferred payment regime has been provided for the situation in which a Belgian company transfers (relocates) assets from its head office in Belgium to a PE in another EEA member state. This can be explained by the fact that it is, in principle, accepted (by the tax authorities and ruling commission) that such transfers are not assimilated to a taxable realisation of the assets and, therefore, are not subject to exit taxation.
The Belgian tax authorities seem to take the view that the capital gain to be realised later, on actual disposal of the asset, does not qualify for treaty exemption to the extent that the gain had accrued prior to the intra-company relocation. As a result, Belgium, in principle, retains the right to tax the transferred (relocated) asset and, therefore, arguably, is not required under Article 5(1)(a) of the ATAD to impose exit taxation upon the intra-company relocation.
Modalities of the deferred payment regime
Election for the deferred payment regime implies the right to pay the exit tax resulting from a qualified transaction in five annual instalments.
This option does not, in principle, result in late payment interest being due, provided the annual instalments are paid on time.
In addition, the Belgian tax authorities cannot make this facility subject to a guarantee from the taxpayer, unless they are in a position to demonstrate a real risk that the outstanding balance will not be recovered.
Following the ATAD, the Belgian legislation provides that the outstanding balance becomes immediately recoverable in certain events. Remarkably, this will be the case, according to the legislation’s wording, in the event that all or part of the assets are disposed of, or transferred outside the EEA. By adding that even disposal/transfer of part of the assets (potentially a minor part) could have this effect, Belgian legislation seems to go further than the ATAD. If interpreted strictly, then arguably, this rule has a disproportionate effect.
Remaining uncertainties and restrictions
Belgium implemented the deferred payment rules under Article 5 of the ATAD on time. While the new rules largely comply with ATAD, they seem disproportionate in providing that the deferred payment facility is discontinued (also) in the event that only part of the assets is subsequently disposed of, or transferred outside the EEA. On a strict interpretation, this disproportionate effect may substantially reduce the effectiveness/success of the deferred payment facility.
Finally, it is important to note that the new provisions only deal with outbound transactions, meaning that the existing rules for inbound relocation of assets, migration and reorganisation remain unchanged. As these provisions generally provide that the assets enter the Belgian tax jurisdiction at their pre-transaction foreign book-value, i.e. without a step-up in the tax base being granted, Belgian legislation is still not ATAD-proof for inbound situations.
By Ivo Vande Velde and Thomas Aertgeerts, Tiberghien Belgium, local partner at WTS Global
Ivo Vande Velde, Tiberghien Belgium, local partner at WTS Global
Thomas Aertgeerts, Tiberghien Belgium, local partner at WTS Global