Belgium lists Luxembourg and Cyprus as tax havens …

… but says not to take it too seriously.

The tax authorities have published an addendum to their practice note Ci.RH.421/607.890 (AAFisc nr. 64/2010) to comment on the list of states that have not effectively or substantially implemented the OECD exchange of information standard.

Since 1 January 2010 Belgian companies and permanent establishments of foreign companies must report in their annual tax return all (direct and indirect) payments they have made to tax havens (art. 307 ITC 1992) for a total of €100,000 or more. If they are not reported, these payments are not tax deductible. And when they are reported, such payment is only tax deductible if the taxpayer can justify that the payment was made in the context of an actual and genuine transaction with persons other than artificial tax avoidance schemes.

The law defines as tax havens:

  • any State that, during the whole tax year when the relevant payment(s) were made, are considered by the OECD Global Forum on Transparency and Exchange of Information as not having effectively or substantially implemented the OECD exchange of information standard; or
  • any State that have no or a low tax, the threshold being set at a nominal corporate tax rate of 10% (art. 179 RD/ITC 1992).  A list of these states was adopted in a Royal Decree of 6 May 2010 (see Doc 2010-2090).

As for the first category, the addendum explains that on 16 March 2015 the OECD Global Forum had reviewed and rated 77 states, 4 of which were deemed non-compliant with the Global Forum’s information exchange standard: the British Virgin Islands, Cyprus, Luxembourg and the Seychelles.

That means that payments made to one of these four countries must be reported in a form 275F that must be attached to the company income tax, and for the first time in 2015 (for tax year 2015, i.e. financial year 2014 ; the deadline for filing is 30 September 2015).  Payments to Andorra, Anguilla, Antigua and Barbuda, Austria, Barbados, Indonesia, Israel and Saint Lucia, and Turkey, the jurisdictions that received a partially compliant rating, are not concerned by the reporting obligation.

Failure to report these payments will result in the payment being disallowed as an expense for the company. However, the addendum examines this rule in the light of the non-discrimination provisions in the relevant double tax treaties and the free movement of capital guaranteed under article 63 of the Treaty on the Functioning of the European Union. The conclusion is, however, that disallowing the payment for non-compliance with the reporting obligation as such would not be compatible with the double tax treaties or the free movement cannot lead to the non-deductibility of these payments.

The double tax treaty with Cyprus and British Virgin Islands have a non-discrimination provision based on article 24 § 4 of the OECD Model Convention so that the payments cannot be disallowed. The convention with Luxembourg does not have such a provision.

However, Article 198 10° Income Tax Code that disallows these payments infringes article 63 TFEU in particular since Belgium has the possibility to exchange information with Cyprus (article 26 of the Belgium – Cyprus Income and Capital Tax Treaty (1996)) and Luxembourg (Belgium – Luxembourg Income and Capital Tax Treaty (1970), amended in 2009), and the British Virgin Islands (based on the Council of Europe / OECD Mutual Assistance Treaty (1988) as amended in 2010).

Only payments to residents in the Seychelles can, therefore, be disallowed, at least until the the Belgium – Seychelles Income Tax Treaty (2006) enters into force or the Seychelles ratify the Mutual Assistance Treaty.

In practice, this means that the reporting obligation has become entirely ineffective.

Author: Marc Quaghebeur

Marc Quaghebeur is a Belgian tax lawyer with Cabinet DAVID specialising in international tax issues and cross border estate planning. He is a member of the Brussels Bar and the Society of Trust and Estate Practitioners. He

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