If a taxpayer opts for the deferred payment regime, the exit tax can be paid in instalments over five years. Although ATAD provides that its exit taxation rules must apply in the member states from 1 January 2020, Belgium already offers this deferred payment regime for transactions carried-out from 8 December 2016 (the date of publication in the Belgian Official Gazette).
Transactions qualifying for the deferred payment regime
The option for the deferred payment of the exit tax is only available for the following qualifying transactions:
Outbound transfer of assets/business: The transfer (relocation) of assets/business from a Belgian permanent establishment (PE) to the company’s head office, or to another PE of the company, in another jurisdiction. To qualify, the head office or the transferee PE must be established/located in another European Economic Area (EEA) member state (not including Liechtenstein).Under Belgian domestic law, the transfer (relocation) of the assets of a Belgian PE, as well as the transfer of the business carried on by the PE, to the foreign head office or to a PE outside Belgium is, in principle, assimilated to a realisation of the assets/business, resulting in (exit) taxation of latent gains or goodwill.
Outbound migration: The transfer by a Belgian company of its place of effective management (real seat) and/or its registered office to another EEA member state (not including Liechtenstein). Under Belgian legislation, a transfer of the real and/or registered seat to another jurisdiction is, in principle, assimilated to a deemed realisation of assets and thus triggers (exit) taxation on latent gains and goodwill. However, roll-over relief is available for intra-EU transfers (and hence excluding the non EU EEA member states) but only to the extent that the assets remain effectively connected to a Belgian PE.
Outbound restructuring: An outbound cross-border merger or (partial) division resulting in a Belgian company’s assets being transferred to an absorbing/receiving company established in another EEA member state (not including Liechtenstein). For cross-border reorganisations, similar rules apply as those for cross-border migrations (see above).
The deferred payment regime has not been provided in a situation where a Belgian company transfers (relocates) assets from its head office in Belgium to a PE in another EEA member state. This can be explained by the fact that the tax authorities (and the ruling commission) accept, in principle, that such transfers are not subject to exit taxation.
The Belgian tax authorities seem to take the view that the capital gain to be realised later, on actual disposal of the asset, does not qualify for treaty exemption to the extent that the gain had accrued prior to the intra-company relocation. As a result, Belgium, in principle, retains the right to tax the transferred (relocated) asset and, therefore, arguably, is not required under Article 5(1)(a) of the ATAD to impose exit taxation upon the intra-company relocation.
Modalities of the deferred payment regime
If a taxpayer engages in a qualifying transaction, he can opt for the deferred payment regime and pay the resulting exit tax in five annual instalments.
This option does not, in principle, result in late payment interest being due, provided the annual instalments are paid on time.
In addition, the Belgian tax authorities cannot make this facility subject to a guarantee from the taxpayer, unless they are in a position to demonstrate a real risk that the outstanding balance will not be recovered.
Following the ATAD, the Belgian legislation provides that the outstanding balance becomes immediately recoverable in certain events. Remarkably, this will already be the case, in the event that all or part of the assets are disposed of, or transferred outside the EEA. If interpreted strictly, even a disposal/transfer of a minor part of the assets could have this (disproportionate) effect.
Remaining uncertainties and restrictions
Belgium timely implemented the deferred payment rules under Article 5 of the ATAD. While the new rules largely comply with ATAD, they seem disproportionate in providing that the deferred payment facility is discontinued (also) in the event that only part of the assets is subsequently disposed of, or transferred outside the EEA. On a strict interpretation, this disproportionate effect may substantially reduce the effectiveness/success of the deferred payment facility.
Finally, it is important to note that the new provisions only deal with outbound transactions, meaning that the existing rules for inbound relocation of assets, migration and restructuring remain unchanged. As these provisions generally provide that the assets enter the Belgian tax jurisdiction at their pre-transaction foreign book-value (i.e. without a step-up in the tax base), Belgian legislation is still not ATAD-proof for inbound situations.
For more information:
Ivo Vande Velde - counsel Tiberghien (email@example.com)
Thomas Aertgeerts - associate Tiberghien (firstname.lastname@example.org)