International Tax Planning and Transfer Pricing Planning: Belgium from a US perspective

Autor:Professor Dr. Rainer Zielke
Cargo del Autor:Professor in business economics at Østfold University College, Halden, Norway
Actualizado a:April 2017
 
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Contenido
  • 1 Abstract tax planning
  • 2 Abstract transfer pricing planning
    • 2.1 Introduction
    • 2.2 The high tax country Belgium in the OECD context
    • 2.3 Transfer pricing rules of Belgium
      • 2.3.1 Country-per-Country (CbC) reporting
      • 2.3.2 Laws and rules
      • 2.3.3 Arm's length principle
      • 2.3.4 Transfer pricing methods
      • 2.3.5 Definition of related companies
      • 2.3.6 Reporting requirements
      • 2.3.7 Documentation requirements
      • 2.3.8 Cost sharing
      • 2.3.9 Business restructuring
      • 2.3.10 Interaction between customs valuation and transfer pricing
      • 2.3.11 Dispute resolution
    • 2.4 Calculation of the case studies in international tax planning between Belgium and the USA
      • 2.4.1 Design of the tables
      • 2.4.2 The treaty Belgium-USA in brief
      • 2.4.3 BEPS Project progress
      • 2.4.4 Belgium in brief
      • 2.4.5 The USA in brief
      • 2.4.6 Design of case studies
      • 2.4.7 Case study 1: Dividends from Belgium to the US
      • 2.4.8 Case study 2: Interests from Belgium to the US
      • 2.4.9 Case study 3: Royalties from Belgium to the US
      • 2.4.10 Case study 4: Management and technical service fees from Belgium to the US
      • 2.4.11 Case study 5: Capital gains with Belgium as asset country to the US as seller country
      • 2.4.12 Case study 6: Dividends from the US to Belgium
      • 2.4.13 Case study 7: Interests from the US to Belgium
      • 2.4.14 Case study 8: Royalties from the US to Belgium
      • 2.4.15 Case study 9: Management and technical service fees from the US to Belgium
      • 2.4.16 Case study 10: Capital gains with the US as asset country and Belgium as seller country
    • 2.5 Concluding remarks
  • 3 Notes
Abstract tax planning

According to the International Monetary Fund, Belgium confirms in 2016 with a gross domestic product (GDP) of US$ 470,179 million the eigth-highest GDP of Europe. In Belgium, the basic corporate income tax rate is 33.00%, increased to 34.00% by a 3.00% austerity surcharge. Reduced rates apply to companies with taxable income less than EUR 322,500; the reduced rates are also increased by the surcharge. The Belgian corporate tax system is a classical double taxation system, modified by exemption for qualifying participation's held by corporate shareholders. Thus, Belgium is a high tax country. Especially for multinational enterprises, it is therefore interesting to realize profits in lower taxing countries by means of tax planning measures. Belgium has introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting. According to the OECD, in Belgium, economic growth is projected to rise only slightly over the next two years. Sluggish real wage growth will hold back private consumption, although lower taxation of labor will support employment. Investment is moderate, despite high profit margins and favorable financial conditions. Consumer price inflation is projected to be stable at under 2%. Productivity growth has been lower than in most other OECD countries in recent years. It would be boosted by structural reforms that remove barriers to entrepreneurship, strengthen innovation, reduce skill mismatches and foster labor mobility. This chapter provides a survey on the actual tax law frame conditions in Belgium and practical support in international tax planning and transfer pricing planning between Belgium and the US based on cross border case studies.

Abstract transfer pricing planning

With respect to transfer pricing Belgium applies the arm’s length principle and follows the OECD Guidelines, the following transfer pricing methods are applicable: the comparable uncontrolled price method (CUP), the resale price method, the cost-plus method, the transactional net margin method, and the profit split method. There is no hierarchy between the methods. In general, companies are regarded as related if one company, directly or indirectly, participates in the management, control or capital of the other company. A definition of relevant concepts can be found in domestic tax rules, however the list of circumstances constituting control is not exhaustive; the legal as well as the factual control determines whether companies are related or not. There are reporting and documentation requirements. Cost sharing is allowed and business restructuring possible according to OECD standards. There is interaction between customs valuation and transfer pricing. The tax authorities may adjust the taxable income. Belgian tax law provide for the possibility to conclude unilateral as well as multilateral advance pricing agreements, APA's.

Introduction

International tax planning and transfer pricing planning between Belgium, with strongly globalized economy and a transport infrastructure that are integrated with the rest of Europe, a location at the heart of a highly industrialized region that helped make it the world's 15th largest trading nation in 2007, and the US as most important national economy of the world based on cross-border case studies is of central importance. In addition, the USA confirm with a population of 321 million inhabitants in 2016 3rd place of the most populous countries in the world (4.40% of the world population).

According to the International Monetary Fund, [1] Belgium confirms in 2016 with a gross domestic product (GDP) of US$ 470,179 million the eigth-highest GDP of Europe. In Belgium, the basic corporate income tax rate is 33.00%, increased to 34.00% by a 3.00% austerity surcharge. Reduced rates apply to companies with taxable income less than EUR 322,500; the reduced rates are also increased by the surcharge. The Belgian corporate tax system is a classical double taxation system, modified by exemption for qualifying participation's held by corporate shareholders. Thus, Belgium is a high tax country. Especially for multinational enterprises, it is therefore interesting to realize profits in lower taxing countries by means of tax planning measures. Belgium has introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting.

According to the OECD, [2] in Belgium, economic growth is projected to rise only slightly over the next two years. Sluggish real wage growth will hold back private consumption, although lower taxation of labor will support employment. Investment is moderate, despite high profit margins and favorable financial conditions. Consumer price inflation is projected to be stable at under 2%. Productivity growth has been lower than in most other OECD countries in recent years. It would be boosted by structural reforms that remove barriers to entrepreneurship, strengthen innovation, reduce skill mismatches and foster labor mobility. Improving educational outcomes and labor force participation of vulnerable groups, including first and second-generation immigrants, would raise productivity and enhance inclusive growth. House prices and household mortgage debt have increased in recent years, although prudential measures and improvements in bank balance sheets have mitigated the associated risks to the real economy. Low interest rates provide fiscal space that should be used to support growth. Public investment has fallen to the point where the stock of public capital is estimated to be declining. The ongoing plans to improve public transport infrastructure and build schools are a start to reversing this development, but more investments should be considered. Taxation could be further shifted from labor towards non-distortionary taxes to strengthen employment.

According to Orbitax, [3] (Daily Tax News Digest of 12 December 2016),

the Belgian government has proposed a new IP regime to replace the patent box regime that was repealed effective 1 July 2016 due to non-compliance with the modified nexus approach of BEPS Action 5. The proposed regime includes an innovation deduction equal to 85% of the net qualifying IP income derived from qualifying IP assets. The main aspects of the proposed regime are summarized as follows:

Qualifying IP Income and Assets

Qualifying IP income includes:

  • Arm’s length license fees;
  • Embedded royalties included in the sales price of products and services;
  • Damages received in relation to IP infringements;
  • IP income derived from process innovation; and
  • Capital gains related to fixed assets, provided that the sales proceeds are reinvested in qualifying IP expenditure.

Qualifying IP assets include:

  • Patents and supplementary protection certificates (SPCs);
  • Copyrighted software;
  • Orphan drug designations;
  • Data and marketing exclusivity granted by the authorities; and
  • Plant breeders’ rights.

Qualifying IP Expenditure

Qualifying expenditure includes expenditures for the development of qualifying IP assets, including:

  • Expenditures for the acquisition of IP rights;
  • Expenditures for R&D conducted by the taxpayer; and
  • Expenditure for R&D outsourced to unrelated parties.

Related party expenditure is generally excluded, although a portion is allowed via a 30% uplift (see below).

Innovation Deduction Determination

To determine the innovation deduction amount, the nexus ratio is calculated as: Qualifying R&D Expenditure x 130% (uplift) / Total R&D Expenditure (nexus ratio may not exceed 100%). The nexus ratio is then applied to the total qualifying income and then multiplied by 85% to determine the deduction amount. If the deduction amount cannot be fully utilized, it may be carried forward indefinitely.

Effective Date

The new innovation deduction is to be effective retroactively from 1 July 2016. However, if a taxpayer claims the deduction under the previous patent regime, which was grandfathered through 30 June 2021, the new innovation deduction may not be claimed.

According to Orbitax, [4] (Daily Tax News Digest of 18 October 2016) on 14 October 2016, the four parties of Belgium's governing coalition reportedly reached agreement on the tax measures for the 2017 Budget. The main measures include:

  • An increase in the top withholding tax rates on dividends and interest from 27% to 30%;
  • The repeal of the speculation tax for individuals...

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