Belgium enacts Pillar 2
On 31 December 2023, the law introducing a minimum tax for multinational companies and large domestic groups came into force. The minimum tax applies as of 2024 (financial years starting from 31 December 2023).
Background
The introduction of this minimum tax is the transposition of the EU Minimum Tax Directive (2022/2523) that required Member States to transpose the rules into domestic law by 31 December 2023. This Directive, is the European translation of the OECD’s Pillar 2 rules that must ensure that multinational enterprises pay a fair share of tax wherever they operate.
By removing a substantial part of the benefits of profit shifting to jurisdictions with no or very low taxes, the global minimum tax reform will level the playing field for companies worldwide and allow jurisdictions to protect their tax bases better.
Scope
The new law applies to Belgian companies that are part of a multinational group or of a sizeable domestic group with an annual turnover of €750 million or more in the consolidated accounts of the ultimate parent entity. This annual turnover must have been achieved in at least two of the four most recent past financial years.
To calculate the qualifying annual turnover, several adjustments have to be made to the accounting net income or loss as shown in the financial statements.
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The qualifying annual turnover is then used to determine the effective tax rate. If the effective tax rate is less than 15%, an additional levy will be due to achieve the targeted minimum tax.
The average tax rate in Belgium will usually be over 15% as the standard corporate income tax is 25%. However, there are a number of tax incentives, such as the investment deduction or the deduction for innovation income.
Realisation of the minimum tax
The minimum tax will be achieved through three different levy measures : the Qualified Domestic Top-up Tax, the Income Inclusion Rule and the Undertaxed Profit Rule.
The Qualified Domestic Top-Up Tax (QDMTT) allows a country to tax low-taxed entities on their territory with a tax rate of up to 15%. In the absence of such domestic top-up tax, the country where the group's parent entity is located will be able to apply the Income Inclusion Rule (the IIR levy) and the Undertaxed Profit Rule (the UTPR levy).
Belgium introduced a domestic top-up tax (QDMTT) designed to qualify for the QDMTT Safe Harbour. On this basis, all low-taxed entities established in Belgium will be subject to this domestic top-up tax.
In the case of foreign group entities in one or more low-tax countries in which no (or insufficient) domestic withholding tax applies, Belgium will be able to levy the IIR withholding tax on behalf of the Belgian ultimate parent entity.
If foreign group entities in one or more low-taxed countries would escape both domestic withholding tax and IRR withholding tax, Belgium will be able to levy UTPR withholding tax on behalf of Belgian group entities.
Safe harbours
The introduction of the minimum tax will result in additional compliance and administration costs for the taxpayers and for the tax administration. To mitigate these costs, a number of 'safe harbours' are provided for a multinational group to avoid calculating the effective tax rate and additional tax for its activities that are likely to be taxed at or above the minimum tax rate.
If a proper safe harbour can be applied, no additional tax will be payable.
The new law provides for three (temporary) safe harbours running until financial years commencing up to and including 31 December 2026 :
The first safe harbour is that the jurisdictional surcharge is deemed to be zero where the multinational enterprise group has reported in its qualified country report a total revenue of less than €10 million and has reported a profit (loss) before income tax of less than €1 million in that jurisdiction.
The second sax safe harbour provides for a simplified way of calculating the effective tax rate, whereby if, according to that calculation, the effective tax rate exceeds a certain percentage, the jurisdictional surcharge is deemed to be zero.
The final safe harbour is that when the MNE group's profit (loss) before income tax in a jurisdiction is equal to, or less than, the amount of income excluded on the basis of substance, for group entities resident in that jurisdiction under the country report, the jurisdictional surcharge is deemed to be zero.
The OECD has developed two additional safe harbours, a permanent QDMTT Safe Harbour and a temporary UTPR Safe Harbour. These additional safe harbours will be included in subsequent legislation.
Under the main safe harbour, the permanent QDMTT Safe Harbour, it will no longer be necessary to carry out the complex calculation of the IIR surcharge or the UTPR surcharge if a Qualified Domestic Top-up Tax is applied in that country, this will mostly be the case.
The UTPR Safe Harbour can be applied by MNE groups that have their headquarters in a country with a profit tax of 20% or more ; it appears to be tailored to US and Chinese companies. This will allow these companies to escape the minimum tax until 2026.
Obligations
Belgian companies falling within scope will have to calculate their effective tax rate and file a return to the extent necessary. These various returns are based on the models published by the OECD.
A domestic withholding tax return (QDMTT return) must be filed at the latest within 11 months after the closing of the financial year. Consequently, for the financial year ending 31 December 2024, the QDMTT return will have to be filed by 30 November 2025.
In principle, the IRR withholding tax and UTPR withholding tax returns (IRR/UTPR returns) will have to be filed within 15 months after the end of the financial year but that has already been extended to 18 months for the first year.
The QDMTT return must be filed by the group entity established in Belgium or a local entity designated for that purpose. The IRR/UTPR return will only have to be filed by the group entities established in Belgium if a return has not already been filed abroad.
The system of advance payments that applies to the corporate income tax will also apply to the minimum tax. Consequently, in case the company does not make sufficient advance payments, a tax increase will be due. However, for 2024, there is a tolerance that all advance payments are deemed to have been made during the first quarter.
To monitor the application of these new regulations, the tax administration will be able to apply the 10-year investigation and audit periods. In case of any infringements, administrative fines ranging from €2,500 to €250,000 may be imposed.