Arguing against ‘fairness’ would be like arguing against motherhood and apple pie. So while the principle behind the Fairness Tax may be irreproachable, that every company should contribute its fair share to state coffers, the execution, it must be said, is detrimental to Belgium’s attractiveness and competitiveness.
Following media exposés earlier this year about multinational corporations which legally plan to reduce their tax liabilities in Belgium, the government has introduced a so-called ‘Fairness Tax’ to ensure that all companies pay a minimum amount of tax. This new tax, however, is likely to do more harm than good.
There are two conditions that must be met for a company to be liable for the Fairness Tax:
1. The company must not be an SME as defined by Belgian law. (In fact, the government hopes to use some its new income to help the growth of SMEs.)
2. A company must pay more in dividends than in tax. Should this be the case, a 5% tax will be levied on the difference between dividends paid and the pre-taxed profits.
Simple in principle, perhaps, but upon further inspection, there are serious flaws with this idea.
To begin, it makes the assumption that a company distributing dividends is a company that is doing well (and hence can afford the tax). Business realities are much more complex than this, however. What of a company that has been going through difficult times, but wishes to distribute dividends to keep the shareholders on board? The tax does not discriminate between companies that are doing well and those that are struggling.
Additionally, this new tax could conflict with the European Parents-Subsidiary Directive, which governs the distribution of dividends. The directive explicitly states that no tax should be levied on these dividends, which suggests future legal action against the Fairness Tax is possible.
Finally, the Fairness Tax has created additional uncertainty in Belgium and penalizes companies which use existing measures, such as the notional interest deduction which itself is subject to constant change, to reduce taxation and thereby offset the high corporate tax rate (33.99%) and the even higher labor costs. These mixed signals from the government create uncertainty for businesses, for which a stable fiscal regime or clear government vision are essential.
AmCham Belgium’s position
The Fairness Tax will damage Belgium’s international reputation and could very well be the final straw for companies that have remained loyal to Belgium so far. The Chamber has long lobbied for fiscal and regulatory stability, which are necessary for business planning. In our 2013 Priorities for a Prosperous Belgium, we argue that predictability helps draw investment.