(Limited) Tax Consolidation in Belgium
Until recently, Belgium was one of the few European countries that did not have a tax consolidation. In 2019 some form of (limited) tax consolidation was introduced. The tax consolidation is an optional tax consolidation mechanism with group contributions, the intra-group transfer deduction.
A company can set off tax losses incurred by another group company against its profits. Specifically, a profit-making group company (A) can make a group contribution to a loss-making company (B) in the same group. A can then deduct the group contribution from its taxable base, while B adds the group contribution to its taxable profits. The loss incurred by B can be set off against A’s profit in the same tax year.
The intra-group transfer must be agreed between parties and company A has an obligation to compensate B, as B’s losses carried forward are reduced. A therefore pays a compensation to B for the ‘loss’ of its losses. This compensation is equal to the tax saved by A. The compensation is neutral from a tax point of view as it is tax exempt in B and a disallowed expense for A.
The group contribution regime is reserved to group companies with a very strong economic link that are structured in a very specific way and that meet certain formal conditions.
Group contributions are only possible between Belgian and Belgian branches of foreign companies where one company has a direct 90% holding in the share capital of the other, or vice versa, or a third company has a direct 90% shareholding of both companies.
Both companies must have been linked for at least the last five successive financial years.
A foreign company will only be eligible if it is established in a member state of the European Economic Area. It can be assumed that Belgium will also have to allow the application of the measure if the joint parent company is established in a country with which Belgium has concluded a double taxation treaty which contains an explicit non-discrimination provision.
Certain companies that enjoy a favourable tax status are excluded: investment companies and regulated real estate companies, shipping companies that pay the tonnage tax, diamond dealers, …). provision. Foreign companies are excluded if they are liable to corporate tax or a similar tax but enjoy a derogating tax regime.
The direct holding requirement means that group contributions are possible between a parent company and a subsidiary, or between sister companies where the parent company holds a direct shareholding of 90%. They are not possible between a parent company and the subsidiary of its subsidiary or between sister companies held by a shareholder who is not a company.
EEA resident companies with a Belgian permanent establishment can grant or receive a group contribution to/from its Belgian subsidiary. The same applies between a Belgian parent company and the Belgian permanent establishment of its EEA subsidiary. Group contributions are also possible between two Belgian permanent establishments of two EEA companies if they are parent and subsidiary or two sister companies. Group contributions are only possible between Belgian and Belgian branches of foreign companies where one company has a direct 90% holding in the share capital of the other, or vice versa, or a third company has a direct 90% shareholding of both companies.
Group Contribution Agreement
The group contribution can only be deducted if both companies have concluded a group contribution agreement, with two commitments:
- The loss-making company or establishment must undertake to add the group contribution to its profits of the tax year. This means adding the group contribution to its reserves at the beginning of the tax year.
- The company that deducts the group contribution must undertakes to pay to the other company compensation equal to the taxes that would have been due if the group contribution had not been deducted from its profit of the taxable period. This is therefore protection of the interests of the minority shareholders of the other company.
A group contribution agreement can only relate to the same tax year. A group contribution agreement has to be made on an annual and bilateral basis. The agreement must be in place and the compensation paid before the tax return is filed with the group contribution agreement according to the model imposed by the Belgian tax authorities (Dutch/French).
In order to avoid abuses, the deduction of the group contribution is limited to the loss of the current tax year. It cannot be set off against losses carried forward of the receiving company.
The group contribution is not recorded in the accounts, but the compensation paid by the profitable company is. See Opinion CNC 2019/06 of the Accounting Standards Commission
The group contribution is only included in the corporate income tax return, i.e. as a disallowed expense in the profit-making company and by an adjustment of the retained earnings at the beginning of the tax year in the loss-making company (see practice note 2020/C/29).
Belgium has a tax consolidation regime that is limited because of the strict conditions : the direct shareholding between the participating companies, the five year holding period (except in case of merger or demergers) that excludes the losses of start-up companies.