Dear Sirs and Madams,
Last year in January 2016, Minister Van Overtveldt proposed a tax overhaul that would gradually reduce Belgium’s high corporate income tax rate from 33.9% to 20% in 2020, in line with AmCham Belgium’s recommendations and supported by a report from the High Council of Finance. However, nearly 500 days later, the plan has been put "on the back burner" and our members are increasingly concerned that the Belgian Government is no longer moving forward with a corporate income tax reform.
In the meantime, in addition to a high corporate tax rate and the significantly-reduced benefits generated by the Notional Interest Deduction, companies are weighed down by other taxes, including the newly-increased 30% dividend withholding tax and the 5.15% "Fairness Tax" (even as the latter was recently found (partly) incompatible with European law), and other concerns such as the EU's State Aid positions and increased bank levies. In addition, new additional administrative burdens have been introduced such as the new reporting requirements connected with Transfer Pricing Documentation that exceed the international requirements by a wide margin. Instead of pursuing meaningful reforms to make the Belgian tax regime more competitive, as other countries are doing, politicians have been bogged down in discussions about a proposed 30% capital gains tax on privately-held shares.
Based on 2015 EUROSTAT data, the Belgian combined tax on corporations (comprised of employers’ social security contributions and corporation tax) represents 12% of Belgium’s gross domestic product (GDP). This significantly exceeds not only the 7.5% burden in the peer group of other small open economies, but even the 9.5% combined tax burden of companies in Belgium’s main trading partners which include large countries such as Germany and France. Those material discrepancies clearly show that Belgium is pricing itself out of the market for productive investment.
With corporate tax reform on the back burner and the continued legal uncertainty surrounding Belgian tax policy, some of AmCham Belgium’s largest corporate members have expressed doubts concerning the future of their business operations in Belgium. In fact, maintaining the current uncompetitive corporate tax rate in the years to come, combined with increasing or maintaining other business-unfriendly taxes, has severely hampered our members in seizing opportunities to relocate to Belgium in the wake of Brexit and has already led several of our members to consider substantially downsizing their presence in Belgium. From substantially downsizing operations and employment to leaving the country altogether, AmCham Belgium members are taking their business elsewhere. It is anticipated that Belgian investments by US-based multinationals will face further pressure as the US Government progresses with its own tax reform plans to substantially lower the US corporate tax rate.
AmCham Belgium stresses that a cross-section of our corporate members estimate they annually contribute on average around €52,000 per full-time employee – but in some instances up to €80,000 – in wage withholding taxes and social security contributions to the Belgian budget. As these employees then do not require the financial support of the government-funded unemployment system, the result is a combined annual contribution to Belgium’s budget of approximately €77,500 euros on average per employee. A reduction of the corporate income tax rate from 33.99% to 20% would cause a decrease in tax revenue for the Government of approximately €4 billion. However, if the reduced tax rate were to result in 63,700 new full-time jobs, the additional wage withholding tax, social security contributions and reduced spending on unemployment benefits in and of themselves would greatly outweigh this loss of revenue. Considering the additional VAT and primary and secondary employment generated by increased investment and consumption, a reduced rate could easily yield substantial net positive budgetary implications for the country. By contrast, maintaining the status quo will clearly produce significant losses of future budgetary revenues, as companies leave Belgium or cut back on jobs.
Given the evident necessity to make Belgium’s tax policy more competitive, it is deeply troubling that, in recent years, taxation has only become more onerous for businesses, as already described above. Once a certain tax burden is exceeded, additional taxes tend to become fiscally counter-productive. For example, the recently-implemented increase in the withholding tax rate on interest and dividends (from 15% to 30%) has led to a significant reduction in the revenue generated (see: De Tijd, 1 June 2017). This phenomenon is known as the "Laffer effect": Too much tax kills tax. For instance, while endorsing and encouraging the objectives of the EU’s Anti-Tax Avoidance Directive (‘ATAD’), we have to say that certain ATAD measures like the interest deduction limitation and other tax restrictions hinder EU based companies’ capacity to invest in local economies. Thus, in order to avoid becoming even less competitive, it is vital that Belgium urgently commits to meaningful reform. And in the absence of comprehensive reform, the ever-increasing tax burden should at least be alleviated by adjustments to corporate taxation by, for instance, abolishing the Fairness Tax, increase the Dividend Received Deduction from 95 to 100% and maintaining the Notional Interest Deduction. Belgium should implement in a business-friendly manner those changes that are mandatory (for example, taking advantage of those options foreseen in the Directive with respect to the interest limitation deduction in function of Ebitda). And it should furthermore continue to elaborate tax incentives that are still allowed (for instance, the enactment of an innovation income deduction) and maintain the Notional Interest Deduction.
AmCham would also like to emphasize the numerous business-friendly tax measures which could easily be taken, with little or no adverse budgetary impact. For example: eliminating "red tape" and useless formalities and repealing symbolic taxes that generate little, no or sometimes even negative revenue for the Government (e.g., the ‘Fairness Tax’ and the stand-alone tax of 0.412% on capital gains on shares realized by corporate taxpayers).
Last but not least, while businesses agree with the need for transparency, making financial data publicly available often leads to misinterpretations and the sharing of sensitive information can lead to competitive disadvantages. Only the internationally agreed standards of the OECD BEPS Action Plan (Transfer Pricing Documentation) should be implemented, without "gold plating".
With Federal elections approaching in 2019, this is really a last wake-up call for Belgium. Dating back to 1993, the current corporate tax rate is now both anti-competitive and obsolete. 2017 is the final year in which this administration, whose arrival had given rise to an expectation of employment- and investment-generating fiscal policies, can introduce meaningful tax reform. We therefore urge the Government to seize this opportunity and address the single most important concern of companies in Belgium.
Thank you for your attention to this "open letter".
Howard Liebman, President
Marcel Claes, Chief Executive