Tax consolidation in Belgium – Something for you?

With the corporate tax reform (through the Act of 25 December 2017, and later amended by the repair legislation of 30 July 2018), the possibility of tax consolidation was also introduced in Belgium. From assessment year 2020 (linked to a taxable period starting no earlier than 1 January 2019), companies may apply the group contribution scheme (Articles 205/5, 185, §4, 194 septies and 198, §1, 15° Belgian Income Tax Code). In this Article we will limit ourselves to the main points of the aforementioned legislation.

1 What?

The group contribution scheme is a system on the basis of which a group company (“transferring company”) transfers part of its taxable result to another company that realises a tax loss for the same assessment year (“receiving company”). This legally permitted profit shift takes place off-balance sheet.

In exchange for this internal loss settlement, the receiving company receives compensation equal to the tax that the transferring company saves. This compensation is included in the bookkeeping, but is tax neutral. It constitutes a non-deductible expense for the transferring company and is not taxed for the receiving company.

For example: parent company X realises a (tax) loss of 100 for assessment year 2021. Subsidiary Y realises a taxable profit of 500 for the same assessment year. X and Y resolve to conclude a group contribution agreement. X’s taxable result increases by 100 and Y’s decreases by 100. Y receives a tax benefit of 25 (100 x 25%) and for this pays compensation of 25 to X.

The conclusion of a group contribution agreement is limited to 1 assessment year. However, a new agreement can be drawn up each year if desired. A template of a group contribution agreement will be established by Royal Decree and must be included with the tax return. 

Please note, however, no real tax consolidation is taking place. Each company must submit its corporate income tax return.

2 Who?

Domestic companies and Belgian establishments of foreign companies (established within the EEA) are eligible for the group contribution scheme. Foreign EEA companies are only eligible to the extent that the losses have been definitively incurred. 

In addition, a “strong economic link must exist” between the two companies. This assumes:

• the holding of a minimum participation (one company has a direct participation of at least 90% in the capital of the other company, or a third-party (national or foreign) company directly holds at least 90% of the capital of the receiving and transferring company); and
• this for a minimum reference period (uninterrupted period of 5 years, starting from 1 January of the 4th calendar year before the calendar year after which the assessment year is named). 

For example, parent company X keeps its accounts per calendar year and has held 90% of the shares of subsidiary Y since the 2018 financial year. Consolidation is possible from assessment year 2023 (provided that the participation is continued during financial year 2023).

In addition, a number of companies are excluded from the system (including companies that make immovable property available to (the spouse or children of) one of their managers).

3 How much?

The amount of taxable profit to be transferred (from the transferring company to the receiving company) is (best) limited to the loss that the receiving company would have suffered if the group contribution had not been included in the profit. After all, the excess forms a minimum taxable basis for the receiving company that cannot be set off against any tax deductions.

Conclusion

In order to increase the attractiveness of its tax system for companies, Belgium introduced a system of tax consolidation. From assessment year 2020 a tax loss deduction at group level is possible. The introduction of such a consolidation system offers a number of opportunities, but also has its limitations.

Justine Bouckaert
De Langhe Attorneys

Published in VOKA – Ondernemers West-Vlaanderen/Oost-Vlaanderen, editie September/October 2019.