As the Federal Government races to finalize the 2018 budget, including a package of socio-economic reforms, before the end of this month, the international competition is heating up. With neighboring countries offering significantly more attractive corporate tax regimes, lowering the corporate income tax rate is necessary just to stay in the race. Doing nothing is not an option.
The average corporate income tax rate in the EU has fallen from 29.0% in 2002 to 21.9% today, according to the European Commission’s 2017 Taxation Trends in the European Union. Belgium started well above the average at 40.2% and, after one tax cut in last 15 years, remains well above the average at 33.99%. Most EU Member States started in a more competitive position than Belgium and have made greater efforts to maintain or improve their attractiveness. In this time, Belgium has ‘gained’ one place, falling from the second to the third highest corporate tax rate in the EU, behind only France and Malta – and France has already begun to gradually reduce its rate.
Beyond the EU, the Trump Administration may reset the global competitive landscape, if it follows through on its plan to slash the US corporate income tax rate to 15%.
The headline tax rate matters in investment decisions. Maintaining the status quo will place Belgium out of competition and be detrimental to the country’s economic prosperity. AmCham Belgium strongly recommends lowering the corporate income tax rate to 20% or even less by 2020, which will bring Belgium in line the EU average and boost the country’s competitiveness. This is vital to attract new and retain existing investors.
Corporate tax reform is all the more important because of the increasing fiscal and administrative burden being placed on companies, as outlined in two new AmCham Belgium position papers. First, the taxable basis is already set to increase next year when the Interest Limitation Rule, part of the EU’s Anti-Tax Avoidance Directive, is transposed into Belgian tax law. And second, the EU’s proposal to introduce public Country by Country Reporting (CbCR) would not only oblige companies to divulge sensitive information, but also, in deviating from the CbCR standards agreed at the OECD level, increase compliance costs. Faced with an exceptionally high nominal corporate tax rate, these new measures are hard to swallow.
With elections on the horizon – 2018 is a local election year – the window of opportunity to introduce meaningful corporate tax reform in this legislature is quickly closing. The price of inaction far outweighs the short-term cost of reform. We urge the Michel Government to act now.