Belgium Clarifies Ambiguous Tax Law

December 23, 2010 International Tax CooperationOffshore TaxationTax HavensTaxation in Belgium

Angel & National Flag of Belgium, Martyrs' Square - Place des Martyrs - Martelaarsplaats, Brussels, BelgiumBelgian tax authorities have clarified their standing on a one-year old tax law on fund transfers to tax havens, after tax professionals claimed that the new rules were unclear and in need of more specifics.

Recently the tax authorities of Belgium released a long-awaited circular intended to clarify a tax law that was introduced into the Belgian tax code on December 23rd 2009. The law concerned the reporting requirements for Belgian resident and non-resident business entities operating in the country which transfer funds or make payments to tax haven jurisdictions.

The law became effective on January 1st 2010, although the concerning legislation was largely regarded as unclear and ambiguous. Commenting on the regulations’ original state and the tax industry’s reaction to the new circular Dirk Van Stappen, tax partner at KPMG Belgium, was quoted as saying, “… the circular on tax havens has been anticipated eagerly, as the legislation was not clear on some points.”

The reporting laws are applicable to all Belgian based companies which make transfers exceeding an amount of EUR 100 000 to countries considered to be tax havens by Belgian authorities, and to any country listed as an “uncooperative jurisdiction” by the Organization for Economic Cooperation and Development (OECD). The new law requires a strict time frame for reporting any transactions to tax havens. Belgian tax authorities also clarified that for the purposes of the legislation all transfers of cash, any interest payments, and transactions involving balance sheet adjustments will be required to be reported. Further, companies and individual taxpayers must be able to provide sufficient evidence that the payments serve a genuine “industrial, commercial or financial need,” which are paid and valued at appropriate accordance with “the arm’s length standard,” and are not constituent to any illicit or suspicious behavior.

Failure to appropriately meet any of the requirements of the new law clarified in the new circular could result in action by tax authorities, with a potential for penalties or disallowance of a deduction for the payments in question. However, the circular reveals that the tax authorities have conceded that some of the requirements may be waived when international information disclosure and movement of capital treaties are applicable.

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