Tax implications of the new investment plan
On 30 September 2020, almost 500 days after the 2019 elections, seven political parties reached an agreement on the formation of a new Belgian government (the so-called Vivaldi government).
The announced relaunch and investment plan for Belgium will require a budget, and taxation is the way for the government to collect the required funds.
Below we’ll dive into the latest updates and insights on this topic. Feel free to reach out to us in case of any comments or questions.
An important measure of the new investment plan relates to the taxation of digitalised companies and the introduction of a minimum tax for businesses. Belgium will constructively support the international initiatives at EU and Organisation for Economic Co-operation and Development (OECD) levels with respect to the Pillar I and Pillar II proposals and taxation of the digital economy. International agreement is preferred, but if no action is taken on an international level by 2023, the intention is to proceed with the necessary measures unilaterally.
Next, during the term of the government, an important tax reform (with a particular focus on the personal income tax side) will be prepared which is expected to be realised in 2024 and the fiscal amnesty procedure would be terminated by the end of 2023. The tax reform does not seem to include a capital gain or securities tax (although it does mention that a fair share of contribution is expected from the wealthiest, taking entrepreneurship into account), but rather emphasises the combat against tax and social security fraud. Further details are currently unknown.
The Belgian tax reform of 2017 brought important structural changes, combining a broader tax base with a reduced overall tax rate. It will be important to maintain those benefits and preserve them while new ideas are assessed in the coming weeks and months.
There are a number of important social challenges ahead for the government, like the climate challenge and the corresponding objective of realising an emissions-free car fleets by 2026. Inevitably, there will be a fiscal impact of the measures addressing those challenges, such as the tax rules on company cars. The impact will be clearer in the weeks and months ahead.
The new government clearly expressed its intention to introduce measures to reduce the Belgian VAT Gap to the level of neighbouring countries.
The VAT Gap is the difference between the expected VAT revenues and the VAT revenues that are effectively collected. This difference is not only caused by revenue losses due to tax fraud or tax evasion, but is also a result of bankruptcies, administrative mistakes or malfunctioning tax collection, to name just a few.
The government document is rather vague on what will change in the coming years with regards to the taxation of people, but things do seem to be taking a certain direction.
First of all, mobility is high on the agenda, and is part of both the Green Deal and the tax reform. The taxation of company cars will change and by 2026, only zero-emission cars will be allowed to be offered by the employing company. How this will be worked out exactly still remains to be seen.
However, the government agreement provides much more direction than purely focusing on company cars. It clearly points to multi-modal mobility, by suggesting opening the mobility budget to all employees (including people who currently don’t have a company-provided car), pushing to increase Mobility as a Service (MaaS) in our cities. It focuses on public transport and cycling for commuting by reviewing the service offerings in public transport and investing in cycling highways, but also by focusing on working from home where possible. In these respects, changes in tax, labour and social legislation are expected.
The breadth and speed of the digital transformation introduces challenges in many policy areas, including the existing international income tax rules which were developed in a "brick-and-mortar" economic environment more than a century ago. The OECD/G20 Inclusive Framework has been working to address tax issues arising from the challenges of the digitalising economy since the initial recommendations of the OECD’s Base Erosion and Profit Shifting (BEPS) work which started nearly ten years ago.
The current scope of the OECD’s two-pillar proposal however includes a wide-scope overhaul of the international tax system which is likely to have an impact on virtually every multinational enterprise, irrespective of how “digital” they really are. Pillar 1 looks at a re-attribution of profits to market jurisdictions and Pillar 2 deals with the imposition of a global minimum tax. The current scope of Pillar 1 is intended to cover both highly digitalized businesses as well as consumer-facing companies with cross-border activity. The Pillar Two goal is expressed as addressing remaining BEPS challenges by ensuring large companies pay a minimum level of tax on income regardless of where it arises.
In addition to the above topics, the agreement of the new government focuses very much on enforcing compliance with the tax rules and regulations and increasing the fight against fraud. A clear commitment has been expressed to propose and implement concrete measures and actions. Currently, the key topics in this respect already included in the agreement are as follows: