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We expect(ed) more from this government

The first details of the corporate tax reform, in the hands of Prime Minister Charles Michel since he personally took over the dossier last Autumn, have begun to emerge in the media. Instead of a comprehensive overhaul, the tax reform will, at least in a first instance, focus on reducing the fiscal burden on small and medium-sized enterprises (SMEs), while maintaining the current corporate income tax rate of 33.99% for larger companies.

This is disappointing. A two-tier tax system, with different rates for different size companies, will do little for Belgium’s international competitiveness or to attract foreign investors. Moreover, this distinction between large and small companies is artificial – SMEs and multinational corporations operate in an integrated ecosystem, and they depend on each other as suppliers, customers, etc.

Last week, the Chamber published an open letter to the Michel Government on the urgent need for corporate tax reform. It re-iterates the recommendations we made last June in our Tax Horizon 2020 position paper by calling for a reduction of the corporate income tax rate from 33.99% today to 20% or even less by 2020. The open letter was re-published in full in De Tijd, and also drew the attention of other media. Trends and Trends-Tendances took away the message that “without reform, American companies threaten to turn their back on Belgium.”

Indeed, according to our recent study on regional headquarters (RHQs) in Belgium, 37.5% of the companies which plan to downsize their Belgium-based RHQ in the next five years are doing so because of the unfavorable tax regimes. (The importance of corporate taxation in business location and investment decisions was covered extensively in L’Echo’s write-up of our study.) The corporate tax reform, as presented, will do little to assuage their concerns.

AmCham Belgium is not alone in making the call for corporate tax reform. Also last week, the OECD published its 2017 Economic Survey on Belgium. Among the 35 OECD member countries, Belgium has the third highest corporate tax rate, behind only France and the United States. In its report on Belgium, the OECD notes that “the high statutory corporate tax rate hurts investment.”

Without a meaningful corporate tax reform, for companies of all sizes, Belgium risks not only missing new investment opportunities but also losing international companies which have a long history in the country – with the negative implications that would have on the country’s budget and on SMEs. International companies need a competitive and predictable fiscal and regulatory environment. Even an incremental reform, implemented over a number of years, would be welcomed as long as companies understand the long-term vision.

Not all bad news

All hope is not lost. The Michel Government has shown political courage in the past and has made significant progress, particularly on labor market reforms. Its efforts are being recognized on the international stage. OECD Secretary-General Angel Gurria last week called Belgium a “top reformer” despite the “delicate global context.” The country also came out 9th in the 2017 EU Innovation Scoreboard and is classed as a ‘strong innovator’ and the European leader in innovation linkages and collaboration. (The collaboration between large and small companies is vital in innovation clusters.)

The Michel Government hopes to find agreement on a package of socio-economic reforms, including on corporate tax reform, by the end of July. We hope they again find the political courage to make a meaningful change for both small and large companies. Belgium’s future depends on it.