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The devil is in the details

As the summer recess has come to an end, it is time to reflect on the corporate tax reform proposed by the Federal Government. The long-awaited reform should not be seen as the end goal, but the first step in a longer process.

At the end of July, the Federal Government announced its plans for a corporate tax reform, as part of a broader socio-economic agreement to improve Belgium’s competitiveness. AmCham Belgium welcomes the tax reform proposal as a solid foundation for further progress and calls on the government, as a matter of priority, to put all of the proposed measures into legislation as soon as possible and no later than January 1, 2018. The Chamber believes that with clarifications, transition measures and, in some cases, adjustments to the proposals, Belgium's competitive position will be safeguarded and strengthened.

Most attention-grabbing at the time was the announcement that the corporate income tax rate will be gradually reduced from 33.99% today to 25% by 2020. While this rate reduction sends an important signal to investors, it is questionable whether it is sufficient to lure international business to Belgium. For 2018 and 2019, the headline rate will be just a tad below 30% and promises to reduce it further in three years will not really weigh into investment decisions over the next two years. Even at 25%, the nominal corporate tax rate will remain above the EU average. AmCham Belgium maintains its recommendation to lower the corporate tax rate to 20% or even less for all companies.

In an effort to make the corporate tax reform budget neutral, the government also introduced a number of ‘compensatory’ measures, which will affect multinational companies and particularly those in cyclical industries. This gives a mixed message to investors and may have a deterrent effect on business and investment decisions. The proposed introduction of cash tax for audit adjustments instead of a system of horizontal monitoring is particularly concerning. We believe a constructive collaboration between the tax administration and taxpayers is more fruitful.

The planned reform of the Notional Interest Deduction (NID) will affect treasury and other functions which are typically associated with regional headquarters, and a long transition period will be essential. For this reason, AmCham Belgium recommends to retain the NID in its current form.

What was absent from the corporate tax reform is equally important as what was included. Contrary to expectations, the expansion of the dividends-received deduction (DRD) from 95% to 100% was not included in the package. This is a measure which would strengthen Belgium’s attractiveness for regional headquarters and bring it in line with neighboring countries.

This corporate tax reform is not transformative, but it is a good start, and AmCham Belgium is ready to work in partnership with the government, as it continues down the path of reform. We will present our full recommendations to the Belgian government(s) in our 2017 Priorities for a Prosperous Belgium, scheduled for release on September 28.