Impact of Brexit

Impact of Brexit on corporate taxation in Belgium

Marc Verbeek
Impact of Brexit

At the time of writing this article it looks like we are heading for a hard Brexit. This means that the United Kingdom will no longer be part of the European Union (EU).  What follows is an overview of the consequences of this in the field of corporate taxation in Belgium.

Impact on corporate taxation

As the UK will no longer be part of the EU, the EU Directives will no longer apply. This means that Belgian companies in their relationship to the UK will no longer be able to rely on the guidelines included in the Directives in case these were not implemented in domestic law.  The tax treaty between Belgium and the UK will remain fully applicable.  

Cross-border dividend distributions

Brexit will not have much impact on cross-border dividend distributions between Belgium and the UK. 

According to the Parent/Subsidiary Directive, no withholding tax is due if certain conditions are met (minimum shareholding of at least 10%, held for at least 1 year).

In case the subsidiary is a Belgian company, Belgium will continue to apply the exemption of withholding tax on dividend distributions (provided the above conditions are met), since according to Belgian domestic law the exemption applies to all parent companies being tax resident in a country with which Belgium has concluded a tax treaty with a clause for the exchange of information, which is the case with the UK.

For dividends received by a Belgian parent company a dividend exemption applies if certain conditions are met (minimum shareholding of at least 10%, held for at least 1 year, the subsidiary meets the subject to tax requirement).   

Dividends from an EU subsidiary are fully exempt. If however the dividend comes from a non EU subsidiary, the exemption does not apply on some disallowed expenses. 

For dividends coming from a subsidiary in the EU, the subject to tax requirement is deemed to be met anyhow. However in case the dividend comes from a subsidiary in a non EU country, its nominal corporate income tax rate should at least be 15%, if not the exemption does not apply at all.  Although the nominal tax rate in the UK is actually 19% going down to 17% as from April 1, 2020, it has been announced that it will likely decrease further to less than 15%. It is not clear whether the equal treatment clause in the tax treaty between Belgium and the UK is broad enough so as to cover the dividend exemption after a rate decrease below 15%.

Cross-border interest and royalty payments

The actual exemption of withholding tax based on the Interest/Royalty Directive would no longer apply but in this case the double tax treaty offers relief.

In case of cross-border interest and royalty payments between enterprises, there is an exemption provided certain formalities are fulfilled. The formalities however involve the intervention of the tax administration of both countries and increase the administrative burden.

Cross-border reorganisations

Following the Merger directive, cross border reorganisations within the EU can, under certain conditions, be implemented in a tax neutral way. This is no longer possible when the UK is no part of the EU any more.

Other EU-Directives and regulations

What about other EU-Directives like the ATAD Directive (Anti-Tax Avoidance) or the Directive for administrative cooperation and exchange of information? Or the draft Directive on the Common Consolidated Corporate Tax Base or the measurements for taxation of the digital economy?

These will not apply (anymore).

What if the UK would also no longer be part of the European Economic Area (EEA)?

In this case, a number of other measures are also compromised, amongst others:

  • the newly introduced system of tax consolidation (applicable as from tax year 2020)
  • the off-setting of final losses of a permanent established in the UK against Belgian profits (as from tax year 2021)
  • the tax shelter regime
  • the possibility to pay the exit tax over 5 years